Company Update (NYSE:EMES): Emerge Energy Services Announces First Quarter 2015 Results


Emerge Energy Services LP (NYSE:EMES) announced first quarter 2015 financial and operating results.

Highlights

  • Adjusted EBITDA of $28.4 million for the three months ended March 31, 2015.
  • Distributable Cash Flow of $24.5 million for the three months ended March 31, 2015.
  • Cash available for distribution of $23.7 million, or $1.00 per unit, for the three months ended March 31, 2015.
  • Full quarter sales of 1,151,000 tons of sand.

Overview

Emerge Energy reported net income of $9.5 million, or $0.39 per diluted unit for the three months ended March 31, 2015.  For that same period, Emerge Energy reported Adjusted EBITDA of $28.4 million and Distributable Cash Flow of $24.5 million.  Net income, net income per unit and Adjusted EBITDA for the three months ended March 31, 2014, were $18.5 million, $0.77 and $28.0 million, respectively.  Adjusted EBITDA and Distributable Cash Flow are non-GAAP financial measures that Emerge Energy uses to assess its performance on an ongoing basis.

Previously, Emerge Energy declared a distribution of $1.00 per unit for the first quarter of 2015, which represents a 29% decrease over the fourth quarter 2014 distribution of $1.41 per unit.  The Board of Directors has elected to withhold approximately $0.03 per unit of distributable cash flow as a capital expenditure reserve.

“Emerge Energy had a solid quarter, especially given the current market environment” said Ted W. Beneski, Chairman of the Board of Directors of the general partner of Emerge Energy.  “Our fuel segment returned to profitability and continues to build on early successes in 2015.  Our sand segment was able to delivery strong volumes but suffered from a weak pricing environment and the underutilization of our railcar fleet.  As a result of the current market conditions, we have significantly curtailed our capital expenditure plans for 2015 and now expect to spend roughly $30-40 million dollars, including capital expenditures.  Most of the remaining capital has been deferred to 2016.”

“Our sand segment did a fantastic job, despite the decline in proppant demand and pricing,” added Rick Shearer, CEO of Emerge Energy.  “The sand segment generated Adjusted EBITDA of $26.3 million for the three months ended March 31, 2015 on sales volume of 1,151 thousand tons.  Our volumes were up significantly from the first quarter of last year; and based on our estimates of market demand, we believe we have significantly grown our market share despite lower quarter-over-quarter volumes.  Market pricing, as well as the prices we have negotiated with our customers, have both fallen dramatically, both at the plant and in basin.  While we have been able to significantly lower our production costs, and believe we will continue to do so in subsequent quarters, our fixed rail expense, which includes both our operating leases and railcar storage costs, were significant.  We are taking a number of steps to reduce that cost, including delaying or cancelling orders of new cars.

“Our Fuel segment generated Adjusted EBITDA of $4.1 million for the three months ended March 31, 2015, a significant quarter-over-quarter increase.  Our base margin on our wholesale and transmix remained solid, while the increase in refined product pricing contributed positively to EBITDA.”

Conference Call

Emerge Energy will host its 2015 first quarter results conference call later today, Monday, May 4, 2015 at 10 a.m. CDT.  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 34355647.  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 from 1:00 p.m. CDT on May 4 through 10:59 p.m. CDT on May 11, 2015.  The replay teleconference will be available by dialing (855) 859-2056 or (404) 537-3406 and the reservation number 34355647.

 

Operating Results

The following table summarizes Emerge Energy’s unaudited consolidated operating results for the three months ended March 31, 2015 and 2014 (in thousands).

Three Months Ended March 31,
2015 2014
REVENUES $ 203,961 $ 274,081
OPERATING EXPENSES
Cost of goods sold 168,330 239,796
Depreciation, depletion and amortization 6,440 5,770
Selling, general and administrative expenses 9,603 8,475
Write-off of assets 6,719
Total operating expenses 191,092 254,041
Operating income 12,869 20,040
OTHER EXPENSE (INCOME)
Interest expense, net 3,129 1,584
Other (29 ) (119 )
Total other expense 3,100 1,465
Income (loss) before provision for income taxes 9,769 18,575
Provision for income taxes 278 89
NET INCOME (LOSS) $ 9,491 $ 18,486
Adjusted EBITDA (a) $ 28,385 $ 27,979

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

Sand Segment

Three Months Ended March 31,
2015 2014
REVENUES $ 96,244 $ 64,334
OPERATING EXPENSES
Cost of goods sold 66,255 38,876
Depreciation, depletion and amortization 3,794 2,758
Selling, general and administrative expenses 3,717 3,216
Write-off of assets 6,719
Operating income $ 15,759 $ 19,484
Adjusted EBITDA (a) $ 26,291 $ 22,237
Volume of sand sold (tons in thousands) 1,151 882
Volume of sand produced (tons in thousands):
Arland, Wisconsin facility 405
Barron, Wisconsin facility 497 480
New Auburn, Wisconsin facility 305 320
Kosse, Texas facility 70 39
Total volume of sand produced 1,277 839

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

For the quarter ended March 31, 2015, Emerge Energy sold 1,151,000 tons of sand, compared to 882,000 tons for the same period in the prior year.  The Barron facility produced 497,000 tons, compared to 480,000 tons for the same period in 2014, while the New Auburn facility produced 305,000 tons, compared to 320,000 tons for the same period in 2014.  After starting up in early December 2014, the Arland facility produced 405,000 tons, while the Kosse facility increased production to 70,000 tons, up from 39,000 for the same period in 2014.  Sand segment Adjusted EBITDA was $26.3 million for the first quarter 2015, compared to $22.2 million for the same quarter in 2014.  This 18% increase in Adjusted EBITDA was due to the increase in total sand sales at all company facilities and lower production costs, mitigated by lower realized pricing on an FOB-plant-equivalent basis and higher logistics costs.

Fuel Segment

Three Months Ended March 31,
2015 2014
REVENUES $ 107,717 $ 209,747
OPERATING EXPENSES
Cost of goods sold 102,075 200,920
Depreciation, depletion and amortization 2,639 3,005
Selling, general and administrative expenses 1,600 1,282
Operating income $ 1,403 $ 4,540
Adjusted EBITDA (a) $ 4,088 $ 7,582
Volume of refined fuels sold (gallons in thousands) 56,395 68,228
Volume of terminal throughput (gallons in thousands) 39,231 56,874
Volume of transmix refined (gallons in thousands) 21,354 35,216
Refined transmix as a percent of total refined fuels sold 37.9 % 51.6 %

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

For the quarter ended March 31, 2015, Emerge Energy sold 56 million gallons of refined fuel, compared to 68 million gallons for the same period last year, and had additional third-party volume of 39 million gallons pass through its terminals, compared to 57 million gallons for the same period last year.  Emerge Energy refined 21 million gallons of transmix for the three months ended March 31, 2015, compared to 35 million gallons for the same period last year.  Adjusted EBITDA for Fuel was $4.1 million for the first quarter, compared to $7.6 million for the comparable quarter in 2014.  This 46% decrease in Adjusted EBITDA was due, in part, to a lower base margin on our wholesale and transmix operations.

Capital Expenditures

For the three months ended March 31, 2015, Emerge Energy’s capital expenditures totaled $8.9 million.  This includes approximately $639,000 of maintenance capital expenditures.

Distributable Cash Flow

For the three months ended March 31, 2015, Emerge Energy generated $24.5 million in Distributable Cash Flow.  On April 24, 2015, we announced a distribution of $1.00 per unit, which is scheduled to be paid on May 14, 2015 to common unitholders of record on May 6, 2015 (Original Source)

Shares of Emerge closed last Friday at $39.85 . EMES has a 1-year high of $145.72 and a 1-year low of $39.02. The stock’s 50-day moving average is $48.15 and its 200-day moving average is $57.97.

On the ratings front, Emerge has been the subject of a number of recent research reports. In a report issued on April 27, Wunderlich Securities analyst Abhishek Sinha downgraded EMES to Hold, with a price target of $40, which represents a slight upside potential from current levels. Separately, on April 15, Robert W. Baird’s Ethan Bellamy downgraded the stock to Hold .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Abhishek Sinha and Ethan Bellamy have a total average return of -17.0% and 7.4% respectively. Sinha has a success rate of 30.6% and is ranked #3567 out of 3590 analysts, while Bellamy has a success rate of 63.6% and is ranked #980.

Emerge Energy Services LP is engaged in the ownership, operation, and acquisition and development of a energy service assets. Its business is segmented into two – Sand segment and Fuel segment.