Document


 
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported): November 1, 2017
 
Emerge Energy Services LP
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-35912
 
90-0832937
(State or other jurisdiction
 
(Commission
 
(IRS Employer
of incorporation or organization)
 
File Number)
 
Identification No.)
 
6000 Western Place, Suite 465
Fort Worth, Texas 76107
(Address of principal executive office) (Zip Code)
 
(817) 618-4020
(Registrants’ telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o          Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o          Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o          Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o          Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 





Item 2.02. Results of Operations and Financial Condition.
 
On November 1, 2017 Emerge Energy Partners LP, a Delaware limited partnership (the “Partnership”) announced its financial and operating results for the quarter and year ended September 30, 2017. A copy of the press release is attached hereto as Exhibit 99.1.
 
The information contained in this Item 2.02, including Exhibit 99.1 attached hereto, is being furnished to the Securities and Exchange Commission and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, none of such information shall be incorporated by reference in any filing made by the Partnership under the Exchange Act or the Securities Act of 1933, as amended, except to the extent specifically referenced in any such filings.

Item 9.01 Financial Statements and Exhibits.
 
(d) Exhibits
 
99.1                           Press Release of Emerge Energy Services LP, dated November 1, 2017


2



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
Emerge Energy Services LP
 
 
 
 
 
By:
Emerge Energy Services GP LLC,
 
 
its general partner
 
 
 
 
 
 
Dated: November 1, 2017
By:
/s/ Deborah Deibert
 
 
 
Deborah Deibert
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial Officer)
 


3



EXHIBIT INDEX
 
Exhibit
Number
 
Description
 
Press release of Emerge Energy Services, LP dated November 1, 2017


4
Exhibit


Exhibit 99.1
 
Emerge Energy Services Announces Third Quarter 2017 Results
 
Fort Worth, Texas — November 1, 2017 — Emerge Energy Services LP (“Emerge Energy”) today announced third quarter 2017 financial and operating results.
 
Highlights 

Net income of $5.0 million and diluted earnings per unit of $0.16 for the third quarter.
Adjusted EBITDA improved 149% or $11.2 million sequentially to $18.7 million for the third quarter.
Total volumes sold increased 6.3% sequentially to 1,480 thousand tons in the third quarter.

Overview

Emerge Energy reported 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 September 30, 2016, net income was $5.1 million, or $0.21 per diluted unit, mainly due to a $31.7 million gain on sale of the Fuel business last year.  Adjusted EBITDA was $18.7 million for the three months ended September 30, 2017 compared to $(8.1) million for the three months ended September 30, 2016. Emerge Energy generated Distributable Cash Flow of $14.1 million for the three months ended September 30, 2017.  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, 2017 as the board of directors of its general partner did not approve a cash distribution and it is restricted from making distributions to its common unitholders under its amended credit agreement.

The results of operations of the Fuel business have been classified as discontinued operations for all periods presented and we now operate our continuing business in a single sand segment.

“The business performed at a high level during the third quarter, and we are proud of our many accomplishments,” noted Ted W. Beneski, Chairman of the board of directors of the general partner of Emerge Energy. “During the third quarter, we achieved positive net income from continuing operations for the first quarter in over two years, and our revenue and profitability grew substantially over the second quarter. Pricing increased at a faster rate than we had expected three months ago, and both our total and frac sand volumes increased by 6% in the quarter compared to the second quarter of 2017. Total cost per ton sold also declined due to operational improvements and higher utilization of our production and logistics assets. As a result, net income (loss) from continuing operations and Adjusted EBITDA increased by nearly 260% and 150% sequentially to $5.5 million and $18.7 million, respectively, for the third quarter. We are well on track to meet or exceed our previously announced guidance of $40 million in Adjusted EBITDA for 2017. Additionally, we are continuing to make progress on our debt capital raise that will refinance our revolving credit facility and provide growth capital for the build out of our San Antonio operation. We broke ground on construction of the phase three expansion last week, and we remain on track to have the expansion operational by early second quarter next year. As we look out to the rest of 2017 and into 2018, we believe that the business will continue to post strong results based on sustained high demand for frac sand and continued execution of our strategic initiatives.”

Conference Call
 
Emerge Energy will host its 2017 third quarter results conference call on Wednesday, November 1, 2017 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 93023127.  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 93023127.

1



Operating Results

The following table summarizes Emerge Energy’s consolidated operating results for the three and nine months ended September 30, 2017 and 2016 and three months ended June 30, 2017:
 
Three Months Ended
 
Nine Months Ended September 30,
 
 
September 30, 2017
 
June 30, 2017
 
September 30, 2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
 
Revenues:
 
 
 
 
 
 
 
 
 
 
Frac sand revenues
$
101,795

 
$
80,916

 
$
31,147

 
$
258,055

 
$
85,384

 
Non-frac sand revenues
1,420

 
1,686

 
138

 
3,106

 
396

 
Total revenues
103,215

 
82,602

 
31,285

 
261,161

 
85,780

 
Operating expenses
 

 
 
 
 

 
 
 
 
 
Cost of goods sold (excluding depreciation, depletion and amortization)
80,239

 
71,428

 
40,500

 
223,978

 
122,644

 
Depreciation, depletion and amortization
6,078

 
5,675

 
4,687

 
16,409

 
14,464

 
Selling, general and administrative expenses
7,302

 
6,850

 
4,697

 
20,030

 
15,931

 
Contract and project terminations

 

 
(25
)
 

 
4,011

 
Total operating expenses
93,619

 
83,953

 
49,859

 
260,417

 
157,050

 
Operating income (loss)
9,596

 
(1,351
)
 
(18,574
)
 
744

 
(71,270
)
 
Other expense (income)
 

 
 
 
 

 
 
 
 
 
Interest expense, net
5,073

 
5,082

 
8,014

 
13,353

 
17,891

 
Other
(901
)
 
(3,008
)
 
3,359

 
(3,218
)
 
3,356

 
Total other expense
4,172

 
2,074

 
11,373

 
10,135

 
21,247

 
Income (loss) from continuing operations before provision for income taxes
5,424

 
(3,425
)
 
(29,947
)
 
(9,391
)
 
(92,517
)
 
Provision (benefit) for income taxes
(58
)
 

 
8

 
(58
)
 
29

 
Net income (loss) from continuing operations
5,482

 
(3,425
)
 
(29,955
)
 
(9,333
)
 
(92,546
)
 
Discontinued Operations
 
 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of taxes
(468
)
 
(2,657
)
 
3,373

 
(3,125
)
 
8,852

 
Gain on sale of discontinued operations

 

 
31,699

 

 
31,699

 
Total income (loss) from discontinued operations, net of taxes
(468
)
 
(2,657
)
 
35,072

 
(3,125
)
 
40,551

 
Net income (loss)
$
5,014

 
$
(6,082
)
 
$
5,117

 
$
(12,458
)
 
$
(51,995
)
 
Adjusted EBITDA (a)
$
18,743

 
$
7,534

 
$
(8,113
)
 
$
26,345

 
$
(26,706
)
 
Adjusted EBITDA from continuing operations (a)
$
18,743

 
$
7,534

 
$
(10,872
)
 
$
26,345

 
$
(39,882
)
 
 
 
 
 
 
 
 
 
 
 
 
Volume of frac sand sold (tons in thousands)
1,361

 
1,284

 
487

 
3,890

 
1,313

 
Volume of non-frac sand sold (tons in thousands)
119

 
108

 
6

 
233

 
18

 
Total volume of sand sold (tons in thousands)
1,480

 
1,392

 
493

 
4,123

 
1,331

 
 
 
 
 
 
 
 
 
 
 
 
Volume of frac sand produced (tons in thousands):
 
 
 
 
 
 
 
 
 
 
Arland, Wisconsin facility
463

 
508

 
21

 
1,339

 
21

 
Barron, Wisconsin facility
497

 
518

 
383

 
1,547

 
1,094

 
New Auburn, Wisconsin facility
346

 
302

 
10

 
965

 
190

 
Kosse, Texas facility
53

 
47

 
44

 
165

 
87

 
San Antonio, Texas facility (b)
16

 

 

 
16

 

 
Total volume of frac sand produced
1,375

 
1,375

 
458

 
4,032

 
1,392

 

2



(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) improved $8.9 million and Adjusted EBITDA improved $11.2 million in the third quarter of 2017, compared to the second quarter of 2017. This improvement was due to an increase in total volumes sold, higher sales prices and lower production costs on a per-ton basis. Volumes sold through our terminals totaled 45% of volume in the third quarter of 2017 compared to 39% in the second quarter of 2017.
Net income (loss) improved $35.4 million and Adjusted EBITDA improved $29.6 million for the third quarter of 2017, compared to same quarter in 2016, mainly due to an increase in total volumes sold, higher prices, and lower production costs on a per-ton basis. This was offset by higher selling, general and administrative expenses in 2017 due to higher employee-related expenses for increased staffing levels and bonus accruals.
Discontinued Operations
Emerge Energy completed the sale of its Fuel business on August 31, 2016 and thus did not have any operations for the Fuel business in 2017.
During the three months ended September 30, 2017, Emerge Energy wrote off an estimated $0.5 million of the hydrotreator escrow receivables relating to completion delays and cost overruns.
Capital Expenditures
 
For the three months ended September 30, 2017, Emerge Energy’s capital expenditures totaled $2.0 million.  This includes approximately $124 thousand of maintenance capital expenditures.
  
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

3



EMERGE ENERGY SERVICES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per unit data)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
Revenues
$
103,215

 
$
31,285

 
$
261,161

 
$
85,780

 
Operating expenses:
 

 
 

 
 
 
 
 
Cost of goods sold (excluding depreciation, depletion and amortization)
80,239

 
40,500

 
223,978

 
122,644

 
Depreciation, depletion and amortization
6,078

 
4,687

 
16,409

 
14,464

 
Selling, general and administrative expenses
7,302

 
4,697

 
20,030

 
15,931

 
Contract and project terminations

 
(25
)
 

 
4,011

 
Total operating expenses
93,619

 
49,859

 
260,417

 
157,050

 
Operating income (loss)
9,596

 
(18,574
)
 
744

 
(71,270
)
 
Other expense (income):
 

 
 

 
 
 
 
 
Interest expense, net
5,073

 
8,014

 
13,353

 
17,891

 
Other
(901
)
 
3,359

 
(3,218
)
 
3,356

 
Total other expense
4,172

 
11,373

 
10,135

 
21,247

 
Income (loss) from continuing operations before provision for income taxes
5,424

 
(29,947
)
 
(9,391
)
 
(92,517
)
 
Provision (benefit) for income taxes
(58
)
 
8

 
(58
)
 
29

 
Net income (loss) from continuing operations
5,482

 
(29,955
)
 
(9,333
)
 
(92,546
)
 
Discontinued Operations
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of taxes
(468
)
 
3,373

 
(3,125
)
 
8,852

 
Gain on sale of discontinued operations

 
31,699

 

 
31,699

 
Total income (loss) from discontinued operations, net of taxes
(468
)
 
35,072

 
(3,125
)
 
40,551

 
Net income (loss)
$
5,014

 
$
5,117

 
$
(12,458
)
 
$
(51,995
)
 
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per unit:
 
 
 
 
 
 
 
 
Earnings (loss) per common unit from continuing operations
$
0.19

 
$
(1.24
)
 
$
(0.31
)
 
$
(3.82
)
 
Earnings (loss) per common unit from discontinued operations
(0.02
)
 
1.45

 
(0.10
)
 
1.67

 
Basic earnings (loss) per common unit
$
0.17

 
$
0.21

 
$
(0.41
)
 
$
(2.15
)
 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per unit:
 
 
 
 
 
 
 
 
Earnings (loss) per common unit from continuing operations
$
0.18

 
$
(1.24
)
 
$
(0.42
)
 
$
(3.82
)
 
Earnings (loss) per common unit from discontinued operations
(0.02
)
 
1.45

 
(0.10
)
 
1.67

 
Diluted earnings (loss) per common unit
$
0.16

 
$
0.21

 
$
(0.52
)
 
$
(2.15
)
 
 
 
 
 
 
 
 
 
 
Weighted average number of common units outstanding - basic
30,270,572

 
24,159,038

 
30,120,216

 
24,136,642

 
Weighted average number of common units outstanding - diluted
30,400,584

 
24,159,038

 
30,183,091

 
24,136,642

 


4



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 tables reconciles net income (loss) to Adjusted EBITDA for the three months ended September 30, 2017, June 30, 2017 and September 30, 2016:
 
Three Months Ended September 30,
 
Three Months Ended June 30, 2017
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing
 
Discontinued
 
Consolidated (a)
 
Continuing
 
Discontinued
 
Consolidated (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
 
Net income (loss)
$
5,482

 
$
(29,955
)
 
$
(468
)
 
$
35,072

 
$
5,014

 
$
5,117

 
$
(3,425
)
 
$
(2,657
)
 
$
(6,082
)
 
Interest expense, net
5,073

 
8,014

 

 
444

 
5,073

 
8,458

 
5,082

 

 
5,082

 
Depreciation, depletion and amortization
6,078

 
4,687

 

 

 
6,078

 
4,687

 
5,675

 

 
5,675

 
Provision (benefit) for income taxes
(58
)
 
8

 

 
8

 
(58
)
 
16

 

 

 

 
EBITDA
16,575

 
(17,246
)
 
(468
)
 
35,524

 
16,107

 
18,278

 
7,332

 
(2,657
)
 
4,675

 
Equity-based compensation expense
343

 
235

 

 
97

 
343

 
332

 
330

 

 
330

 
Contract and project terminations

 
(25
)
 

 

 

 
(25
)
 

 

 

 
Reduction in escrow receivable

 

 
468

 

 
468

 

 

 
2,657

 
2,657

 
Provision for doubtful accounts

 
8

 

 
(543
)
 

 
(535
)
 

 

 

 
Accretion expense
25

 
30

 

 

 
25

 
30

 
29

 

 
29

 
Retirement of assets

 
209

 

 

 

 
209

 
66

 

 
66

 
Fuel division selling expenses

 

 

 
(679
)
 

 
(679
)
 

 

 

 
Other state and local taxes
477

 
483

 

 
59

 
477

 
542

 
456

 

 
456

 
Non-cash deferred lease expense
2,223

 
2,072

 

 

 
2,223

 
2,072

 
2,329

 

 
2,329

 
Unrealized (gain) loss on fair value of warrant
(900
)
 
2,975

 

 

 
(900
)
 
2,975

 
(3,008
)
 

 
(3,008
)
 
Non-capitalized cost of private placement

 
387

 

 
 
 

 
387

 

 

 

 
Gain on sale of discontinued operations, net of tax

 

 

 
(31,699
)
 

 
(31,699
)
 

 

 

 
Adjusted EBITDA
$
18,743

 
$
(10,872
)
 
$

 
$
2,759

 
$
18,743

 
$
(8,113
)
 
$
7,534

 
$

 
$
7,534

 


5



The following tables reconciles net income (loss) to Adjusted EBITDA for the nine months ended September 30, 2017 and 2016:

 
Continuing
 
Discontinued
 
Consolidated (a)
 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
 
Net income (loss)
$
(9,333
)
 
$
(92,546
)
 
$
(3,125
)
 
$
40,551

 
$
(12,458
)
 
$
(51,995
)
 
Interest expense, net
13,353

 
17,891

 

 
1,727

 
13,353

 
19,618

 
Depreciation, depletion and amortization
16,409

 
14,464

 

 
2,354

 
16,409

 
16,818

 
Provision (benefit) for income taxes
(58
)
 
29

 

 
19

 
(58
)
 
48

 
EBITDA
20,371

 
(60,162
)
 
(3,125
)
 
44,651

 
17,246

 
(15,511
)
 
Equity-based compensation expense
1,020

 
137

 

 
331

 
1,020

 
468

 
Write-down of sand inventory

 
5,394

 

 

 

 
5,394

 
Contract and project terminations

 
4,011

 

 

 

 
4,011

 
Reduction in escrow receivable

 

 
3,125

 

 
3,125

 

 
Provision for doubtful accounts

 
1,680

 

 
(469
)
 

 
1,211

 
Accretion expense
83

 
89

 

 

 
83

 
89

 
Retirement of assets
60

 
209

 

 
67

 
60

 
276

 
Reduction in force

 
76

 

 

 

 
76

 
Fuel division selling expenses

 

 

 

 

 

 
Other state and local taxes
1,357

 
1,435

 

 
295

 
1,357

 
1,730

 
Non-cash deferred lease expense
6,453

 
3,679

 

 

 
6,453

 
3,679

 
Unrealized (gain) Loss on fair value of warrant
(3,212
)
 
2,975

 

 

 
(3,212
)
 
2,975

 
Non-capitalized cost of private placement

 
387

 

 

 

 
387

 
Gain on sale of discontinued operations, net of tax

 

 

 
(31,699
)
 

 
(31,699
)
 
Other adjustments allowable under our Credit Agreement
213

 
208

 

 

 
213

 
208

 
Adjusted EBITDA
$
26,345

 
$
(39,882
)
 
$

 
$
13,176

 
$
26,345

 
$
(26,706
)
 

(a) Consolidated numbers for Interest expense, net, Provision for income taxes, Depreciation, depletion and amortization, Equity-based compensation expense, Provision for doubtful accounts and Loss (gain) on disposal of assets include discontinued operations.

6



The following table reconciles Consolidated Adjusted EBITDA to our operating cash flows for the three and nine months ended September 30, 2017 and 2016, and June 30, 2017:
 
Three Months Ended,
 
Nine Months Ended September 30,
 
September 30, 2017
 
June 30, 2017
 
September 30, 2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
$
18,743

 
$
7,534

 
$
(8,113
)
 
$
26,345

 
$
(26,706
)
 
Interest expense, net
(4,169
)
 
(3,975
)
 
(4,682
)
 
(10,828
)
 
(13,671
)
 
Income tax expense
(419
)
 
(456
)
 
(558
)
 
(1,299
)
 
(1,778
)
 
Contract and project terminations - non-cash

 

 
25

 

 

 
Reduction in force

 

 

 

 
(76
)
 
Write-down of sand inventory

 

 

 

 
(5,394
)
 
Other adjustments allowable under our Credit Agreement

 

 

 
(213
)
 
(208
)
 
Fuel division selling expenses

 
 
 
679

 
 
 

 
Cost to retire assets

 
19

 

 
19

 
9

 
Non-cash deferred lease expense
(2,223
)
 
(2,329
)
 
(2,072
)
 
(6,453
)
 
(3,679
)
 
Change in other operating assets and liabilities
(18,646
)
 
4,973

 
(82
)
 
(21,458
)
 
23,668

 
Cash flows from operating activities:
$
(6,714
)
 
$
5,766

 
$
(14,803
)
 
$
(13,887
)
 
$
(27,835
)
 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
$
(2,036
)
 
$
(22,230
)
 
$
152,816

 
$
(25,658
)
 
$
141,804

 
 
 
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
$
9,110

 
$
14,554

 
$
(141,166
)
 
$
40,090

 
$
(134,834
)
 

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. 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. Distributable Cash Flow does not reflect changes in working capital balances. The following table (in thousands) reconciles net income to Distributable Cash Flow:
 
 
Three Months Ended September 30, 2017
 
 
 
 
 
Net income (loss)
 
$
5,014

 
 
 
 
 
Add (less) reconciling items:
 
 
 
Add depreciation, depletion and amortization expense
 
6,078

 
Add non-cash deferred lease expense
 
2,223

 
Add amortization of deferred financing costs
 
915

 
Add non-cash escrow write-down
 
468

 
Add equity-based compensation, net
 
343

 
Add income taxes accrued, net of payments
 
36

 
Add accretion expense
 
25

 
Less unrealized gain on fair value of interest rate swaps
 
(11
)
 
Less maintenance capital expenditures
 
(124
)
 
Less unrealized gain on fair value of warrants
 
(900
)
 
Distributable cash flow
 
$
14,067

 

7