Stock Update (NYSE:EMES): Emerge Energy Services LP Announces Fourth Quarter 2014 Results


Emerge Energy Services LP (“Emerge Energy”) (NYSE: EMES)  announced fourth quarter 2014 financial and operating results.

Highlights

  • Adjusted EBITDA of $36.3 million for the three months ended December 31, 2014.
  • Distributable Cash Flow of $33.4 million for the three months ended December 31, 2014.
  • Cash available for distribution of $33.4 million, or $1.41 per unit, for the three months ended December 31, 2014.
  • Full quarter sales of 1,233,000 tons of sand.
  • Arland facility opened in early December 2014 quickly ramped up to full capacity.

Overview

Emerge Energy reported net income of $24.4 million, or $1.01 per diluted unit for the three months ended December 31, 2014.  For that same period, Emerge Energy reported Adjusted EBITDA of $36.3 million and Distributable Cash Flow of $33.4 million.  Net income, net income per unit and Adjusted EBITDA for the three months ended December 31, 2013, were $14.0 million, $0.58 per diluted unit and $24.6 million, respectively.  For the year ended December 31, 2014, Emerge Energy reported net income of $89.1 million, net income of $3.70 per diluted unit and Adjusted EBITDA of $131.9 million.  Net income, net income per unit and Adjusted EBITDA for the year ended December 31, 2013 were $35.2 million, $0.92 and $85.2 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 $1.41 per unit for the fourth quarter of 2014, which represents an increase of 2.2% over the third quarter 2014 distribution of $1.38 per unit.

“Emerge Energy had a tremendous year, and we are extremely proud of the performance of and cash flow generated by our employees,” said Ted W. Beneski, Chairman of the Board of Directors of the general partner of Emerge Energy.  “Our sand segment continued to deliver strong per-ton margins and brought the Arland facility up to full capacity in record time.  Our fuel segment continued to suffer from falling refined product prices but was able to mitigate much of the damage by accelerating inventory turns and through our hedging program.”

“Our sand segment turned in a record year,” added Rick Shearer, CEO of Emerge Energy.  “The sand segment generated Adjusted EBITDA of $40.3 million for the three months ended December 31, 2014 and $121.9 million for the year ended December 31, 2014. We brought two new mine and wet plant complexes online, acquired a third, and closed the year by opening our 2.5 million ton-per-year Arland dry plant, which we were able to bring to full capacity in four days.  We added in-basin transload locations, increased our rail yard capacity by 50%, and added several thousand rail cars.  We also just added another rail loadout location and are now shipping directly onto four Class One rail lines.

“Demand for frac sand continues to be strong, but lower crude oil prices have had a chilling effect on the market.  We continue to work with customers to improve our position in the market, as well as to help them lower their total cost of sand on a delivered per-ton basis.  This includes moving more product through our transload terminals, using our logistics network to lower the cost of delivery of the sand, and offering other temporary concessions that allow us to recover margin as the price of crude oil recovers.  We have also been able to amend and extend a number of contracts, and now have 8.3 million tons under contract, including commitments for plants that we expect to be operational in the future, for a weighted average remaining life of 4.0 years.  At the same time, we are investing time and some capital in projects that we believe will allow us to continue to lower our sand production costs on a per-ton basis.

“Our Fuel segment generated Adjusted EBITDA of $(1.9) million for the three months ended December 31, 2014 primarily because of the continued decline in refined product prices.  However, we believe that the worst of that market is behind us, and we are taking several proactive measures that we believe will position the fuel segment for a solid performance in 2015 and beyond.

“As we look toward our major capital projects for 2015 and beyond, we still intend to bring online a new 2.5 million ton per year dry plant in Wisconsin.  In addition to our Independence facility, we are well down the road toward constructing a second dry plant, and expect to have one of these two facilities online by the end of the year.  In the fuel segment, we plan to spend $20 million for new hydrotreaters that will allow us to process more high-sulfur transmix into gasoline and ultra-low sulfur diesel, which we believe will make our facilities more competitive and allow us to capture additional margin.  In all, our capital expenditure plans for 2015 total $110 million, approximately $10 million of which is scheduled as maintenance capital expenditures.”

Conference Call

Emerge Energy will host its 2014 fourth quarter and year end results conference call later today, Monday, March 2, 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 (800) 798-2864 or (617) 614-6206 and entering pass code 32273070. 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 2:00 p.m. CDT on March 2 through 11:59 p.m. CDT on March 9, 2015. The replay teleconference will be available by dialing (888) 286-8010 or (617) 801-6888 and the reservation number 13546219.

 

Operating Results

The following table summarizes Emerge Energy’s unaudited consolidated operating results for the three months and year ended ended December 31, 2014 and 2013 (in thousands).

Three Months Ended
 December 31,
Year Ended
 December 31,
2014 2013 2014 2013
REVENUES $ 242,562 $ 246,030 $ 1,111,254 $ 873,255
OPERATING EXPENSES
Cost of goods sold 197,049 214,927 950,006 767,911
Depreciation, depletion and amortization 6,901 6,362 24,803 20,828
Selling, general and administrative expenses 11,695 9,439 38,723 26,835
IPO transaction-related costs 10,966
Total operating expenses 215,645 230,728 1,013,532 826,540
Operating income 26,917 15,302 97,722 46,715
OTHER EXPENSE (INCOME)
Interest expense, net 2,388 1,278 7,394 10,586
Loss on extinguishment of debt 907
Other (13 ) (57 ) 611 (334 )
Total other expense 2,375 1,221 8,005 11,159
Income before provision for income taxes 24,542 14,081 89,717 35,556
Provision for income taxes 124 90 638 386
NET INCOME $ 24,418 $ 13,991 $ 89,079 $ 35,170
Adjusted EBITDA (a) $ 36,311 $ 24,626 $ 131,866 $ 85,191

 

(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
 December 31,
Year Ended
 December 31,
2014 2013 2014 2013
REVENUES $ 104,249 $ 53,796 $ 341,836 $ 167,768
OPERATING EXPENSES
Cost of goods sold 57,799 30,224 204,282 91,416
Depreciation, depletion and amortization 3,935 2,786 12,777 10,458
Selling, general and administrative expenses 6,253 3,652 15,821 10,556
Operating income $ 36,262 $ 17,134 $ 108,956 $ 55,338
Adjusted EBITDA (a) $ 40,333 $ 20,652 $ 121,893 $ 66,623
Volume of sand sold (tons in thousands): 1,233 765 4,306 2,651
Volume of sand produced (tons in thousands):
Arland, Wisconsin facility 124 124
Barron, Wisconsin facility 570 453 2,224 1,334
New Auburn, Wisconsin facility 379 359 1,394 1,330
Kosse, Texas facility 81 17 299 115
Total volume of sand produced 1,154 829 4,041 2,779

 

(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 December 31, 2014, Emerge Energy sold 1,233,000 tons of sand, compared to 765,000 tons for the same period in the prior year.  The Barron facility produced 570,000 tons, compared to 453,000 tons for the same period in 2013, while the New Auburn facility produced 379,000 tons, compared to 359,000 tons for the same period in 2013.  After starting up in early December 2014, the Arland facility produced 124,000 tons, while the Kosse facility increased sales to 81,000 tons, up from 17,000 for the same period in 2013.  Sand segment Adjusted EBITDA was $40.3 million for the fourth quarter 2014, compared to $20.7 million for the same quarter in 2013.  This 95% increase in Adjusted EBITDA was due to the increase in total sand sales at all company facilities, the start-up of the Arland facility, a decrease in sand production costs, an increase in average selling price, and an increase in margin contribution from our logistics services.

Fuel Segment

Three Months Ended
 December 31,
Year Ended
 December 31,
2014 2013 2014 2013
REVENUES $ 138,313 $ 192,234 $ 769,418 $ 705,487
OPERATING EXPENSES
Cost of goods sold 139,250 184,703 745,724 676,495
Depreciation, depletion and amortization 2,959 3,575 11,998 10,369
Selling, general and administrative expenses 1,043 1,767 5,319 6,057
Operating income $ (4,939 ) $ 2,189 $ 6,377 $ 12,566
Adjusted EBITDA (a) $ (1,939 ) $ 5,781 $ 18,514 $ 23,056
Volume of refined fuels sold (gallons in thousands) 58,201 63,413 264,364 224,484
Volume of terminal throughput (gallons in thousands) 43,337 55,872 210,665 207,280
Volume of transmix refined (gallons in thousands) 24,834 32,421 116,611 91,813
Refined transmix as a percent of total refined fuels sold 42.7 % 51.1 % 44.1 % 40.9 %

 

(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 December 31, 2014, Emerge Energy sold 58 million gallons of refined fuel, compared to 63 million gallons for the same period last year, and had additional third-party volume of 43 million gallons pass through its terminals, compared to 56 million gallons for the same period last year.  Emerge Energy refined 25 million gallons of transmix for the three months ended December 31, 2014, compared to 32 million gallons for the same period last year.  Adjusted EBITDA for Fuel was $(1.9) million for the fourth quarter 2014, compared to $5.8 million for the comparable quarter in 2013.  This 134% decrease in Adjusted EBITDA was due, in part, to a sharp and prolonged backwardated period of refined product prices.

Capital Expenditures

For the three months ended December 31, 2014, Emerge Energy’s capital expenditures totaled $18.8 million.  This includes approximately $433,000 of maintenance capital expenditures.

Distributable Cash Flow

For the three months ended December 31, 2014, Emerge Energy generated $33.4 million in Distributable Cash Flow.  On January 23, 2015, we announced a distribution of $1.41 per unit, which was paid on February 13, 2015 to common unitholders of record on February 5, 2015.

Shares of Emerge Energy Services closed last Friday at $54 . EMES has a 1-year high of $145.72 and a 1-year low of $39.90. The stock’s 50-day moving average is $54.00 and it’s 200-day moving average is $78.20.

On the ratings front, Emerge Energy Services  has been the subject of a number of recent research reports. In a report issued on January 26, Wunderlich Securities analyst Abhishek Sinha reiterated a Buy rating on EMES, with a price target of $65, which implies an upside of 20.4% from current levels. Separately, on December 5, Robert W. Baird’s Ethan Bellamy upgraded the stock to Buy .

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.

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