Southlake, Texas - May 10, 2016 - Emerge Energy Services LP ("Emerge Energy") today announced first quarter 2016 financial and operating results.
Highlights
- Adjusted EBITDA of $(10.2) million for the three months ended March 31, 2016.
- Full quarter sales of 439,000 tons of sand.
- Management actively pursuing the sale of the fuel business.
Overview
Emerge Energy reported net loss of $(34.2) million, or $(1.42) per diluted unit, for the three months ended March 31, 2016. For that same period, Emerge Energy reported Adjusted EBITDA of $(10.2) million and Distributable Cash Flow of $(14.8) million. Net income, net income per unit and Adjusted EBITDA for the three months ended March 31, 2015, were $9.5 million, $0.39 per diluted unit and $28.4 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.
As of March 31, 2016, 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. Net loss and net loss per diluted unit for continuing operations for the three months ended March 31, 2016 were $(34.4) million and $(1.43) per diluted unit, compared to net income and net income per diluted unit for continuing operations for the three months ended March 31, 2015 of $8.8 million and $0.36 per diluted unit.
Previously, Emerge Energy announced that it will not make a cash distribution on its common units for the three months ended March 31, 2016. Emerge Energy did not generate available cash to distribute for the three months ended March 31, 2016 due to the challenging oil and natural gas frac sand market and the volatility in wholesale fuel prices during this period.
"The oil and gas environment, and particularly the services sector, remains under intense pressure from this historic downturn," said Ted W. Beneski, Chairman of the Board of Directors of the general partner of Emerge Energy. "We had a very disappointing first quarter, but there is reason to believe that our sales and the overall industry sales have reached the low-water mark in this historic down cycle."
"We are working towards the sale of our fuel business so that we can use the proceeds to pay down our debt and amend our credit agreement to provide the liquidity we need to sustain us until the market recovers. We are on track to have the fuel transaction drive a broader bank facility amendment process, which we have already initiated with our lending partners. Although it will be difficult to part with this stable earnings stream, we understand the need for all stakeholders - creditors included - to be satisfied during these turbulent conditions.
"Our fuel business delivered another good quarter, with Adjusted EBITDA of $3.3 million in the first quarter of 2016, an improvement from the $3.1 million in the fourth quarter of 2015. Results continued to benefit from changes in our transmix supply contracts as well as how we process the diesel we produce from transmix. Furthermore, we successfully began operating the hydrotreater at Direct Fuels last week and are on track to have the Allied Energy hydrotreater operational in early August."
"On the sand technology front, we are more excited than ever about the potential of our revolutionary SandMaxx(TM) self-suspending proppant to bring enormous value to our customers and our stakeholders. We continue to believe that the SandMaxx product can be a "game changer" in this industry. Several customers and operators agree that this is the next frontier of the hydraulic fracturing industry," added Rick Shearer, CEO of Emerge Energy. "I am proud of our company's response to these tough times, and I think some of our best work has been done in the past six months. Our entire team has done an extraordinary job managing the many challenges in this difficult time. We are optimistic that our future is bright and that we will come out of this downturn stronger than ever."
Conference Call
Emerge Energy will host its 2016 first quarter results conference call later today, Tuesday, May 10, 2016 at 2:00 p.m. CST. 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 99630501. 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 99630501.
Operating Results
The following table summarizes Emerge Energy's unaudited consolidated operating results for the three months ended March 31, 2016, December 31, 2015 and March 31, 2015.
| Three Months Ended | ||||||||||||
| March 31, 2016 | December 31, 2015 | March 31, 2015 | ||||||||||
| ($ in thousands) | ||||||||||||
| Revenues | $ | 29,670 | $ | 44,502 | $ | 96,244 | ||||||
| Operating expenses | ||||||||||||
| Cost of goods sold | 43,790 | 38,988 | 66,255 | |||||||||
| Depreciation, depletion and amortization | 4,907 | 4,478 | 3,801 | |||||||||
| Selling, general and administrative expenses | 6,775 | 6,410 | 7,717 | |||||||||
| Contract and project terminations | 4,026 | 1,308 | 6,719 | |||||||||
| Total operating expenses | 59,498 | 51,184 | 84,492 | |||||||||
| Operating income (loss) | (29,828 | ) | (6,682 | ) | 11,752 | |||||||
| Other expense (income) | ||||||||||||
| Interest expense, net | 4,594 | 3,127 | 2,837 | |||||||||
| Other | (1 | ) | (1 | ) | (21 | ) | ||||||
| Total other expense | 4,593 | 3,126 | 2,816 | |||||||||
| Income (loss) from continuing operations before provision for income taxes | (34,421 | ) | (9,808 | ) | 8,936 | |||||||
| Provision for income taxes | 20 | (29 | ) | 181 | ||||||||
| Net income (loss) from continuing operations | (34,441 | ) | (9,779 | ) | 8,755 | |||||||
| Income (loss) from discontinued operations, net of taxes | 226 | (109 | ) | 736 | ||||||||
| Net income (loss) | $ | (34,215 | ) | $ | (9,888 | ) | $ | 9,491 | ||||
| Adjusted EBITDA (a) | $ | (10,165 | ) | $ | 3,390 | $ | 28,385 | |||||
(a) See section entitled "Adjusted EBITDA and Distributable Cash Flow" that includes a definition of Adjusted EBITDA and provides reconciliation to GAAP net income.
Continuing operations
| Three Months Ended | ||||||||||||
| March 31, 2016 | December 31, 2015 | March 31, 2015 | ||||||||||
| ($ in thousands) | ||||||||||||
| Revenues | $ | 29,670 | $ | 44,502 | $ | 96,244 | ||||||
| Operating expenses: | ||||||||||||
| Cost of goods sold (excluding depreciation, depletion and amortization) | 43,790 | 38,988 | 66,255 | |||||||||
| Depreciation, depletion and amortization | 4,907 | 4,478 | 3,801 | |||||||||
| Selling, general and administrative expenses | 6,775 | 6,410 | 7,717 | |||||||||
| Contract and project terminations | 4,026 | 1,308 | 6,719 | |||||||||
| Operating income (loss) | $ | (29,828 | ) | $ | (6,682 | ) | $ | 11,752 | ||||
| Adjusted EBITDA | $ | (13,487 | ) | $ | 287 | $ | 24,297 | |||||
| Volume of sand sold (tons in thousands) | 439 | 581 | 1,151 | |||||||||
| Volume of sand produced (tons in thousands): | ||||||||||||
| Arland, Wisconsin facility | - | 165 | 405 | |||||||||
| Barron, Wisconsin facility | 320 | 297 | 497 | |||||||||
| New Auburn, Wisconsin facility | 169 | 43 | 305 | |||||||||
| Kosse, Texas facility | 17 | 62 | 70 | |||||||||
| Total volume of sand produced | 506 | 567 | 1,277 | |||||||||
(a) See section entitled "Adjusted EBITDA and Distributable Cash Flow" that includes a definition of Adjusted EBITDA and provides reconciliation to GAAP net income.
Adjusted EBITDA for continuing operations decreased $13.8 million for the quarter ended March 31, 2016, compared to the quarter ended December 31, 2015. This decrease in Adjusted EBITDA was due to the decrease in total sand sales at all company facilities and $7.0 million of shortfall revenues recognized on take-or-pay customer contracts in the fourth quarter of 2015. Adjusted EBITDA for continuing operations decreased $37.8 million in the first quarter of 2016, compared to same quarter in 2015 mainly due to the decrease in total sand sales at all company facilities, lower realized pricing for FOB plant sales and in-basin sales, and higher logistics costs.
During the first quarter of 2016, we had higher operating expenses due to a $5.4 million write down of sand inventory and $4.0 million contract termination charges related to railcar lease negotiations. We also recorded $1.7 million of bad debt expense for a customer who declared bankruptcy in April 2016.
Discontinued operations
| Three Months Ended | ||||||||||||
| March 31, 2016 | December 31, 2015 | March 31, 2015 | ||||||||||
| ($ in thousands) | ||||||||||||
| Revenues | $ | 80,481 | $ | 86,004 | $ | 107,717 | ||||||
| Cost of goods sold (excluding depreciation, depletion and amortization) | 75,700 | 81,809 | 102,075 | |||||||||
| Depreciation, depletion and amortization | 2,354 | 2,638 | 2,639 | |||||||||
| Selling, general and administrative expenses | 1,598 | 1,234 | 1,886 | |||||||||
| Interest expense, net | 597 | 401 | 288 | |||||||||
| Other | - | - | (4 | ) | ||||||||
| Income (loss) from discontinued operations before provision for income taxes | 232 | (78 | ) | 833 | ||||||||
| Provision for income taxes | 6 | 31 | 97 | |||||||||
| Income (loss) from discontinued operations, net of taxes | $ | 226 | $ | (109 | ) | $ | 736 | |||||
| Adjusted EBITDA | $ | 3,322 | $ | 3,103 | $ | 4,088 | ||||||
| Volume of refined fuels sold (gallons in thousands) | 62,222 | 55,768 | 56,395 | |||||||||
| Volume of terminal throughput (gallons in thousands) | 17,550 | 16,038 | 39,231 | |||||||||
| Volume of transmix refined (gallons in thousands) | 24,448 | 2,202 | 21,354 | |||||||||
| Refined transmix as a percent of total refined fuels sold | 39.3 | % | 39.5 | % | 37.9 | % | ||||||
(a) See section entitled "Adjusted EBITDA and Distributable Cash Flow" that includes a definition of Adjusted EBITDA and provides reconciliation to GAAP net income.
Discontinued operations comprises what we previously classified as our fuel segment along with certain allocated corporate costs such as interest, taxes and equity-based compensation. Adjusted EBITDA for discontinued operations increased $0.2 million in the quarter ended March 31, 2016, compared to December 31, 2015, mainly due to increased volumes of refined fuels sold. Adjusted EBITDA decreased $0.8 million for the first quarter 2016, compared to the same quarter in 2015. This decrease in Adjusted EBITDA was due to the decline of refined fuel prices.
Capital Expenditures
For the three months ended March 31, 2016, Emerge Energy's capital expenditures totaled $4.9 million. This includes approximately $119,000 of maintenance capital expenditures.
About Emerge Energy Services LP
Emerge Energy Services LP (NYSE: EMES) is a growth-oriented limited partnership engaged in the businesses of mining, producing, and distributing silica sand, a key input for the hydraulic fracturing of oil and natural gas wells. Emerge Energy also processes transmix, distributes refined motor fuels, operates bulk motor fuel storage terminals, and provides complementary fuel services. Emerge Energy operates its sand business through its subsidiary Superior Silica Sands LLC and its fuel division through its subsidiaries Direct Fuels LLC and Allied Energy Company LLC.
Forward-Looking Statements
This release contains certain statements that are "forward-looking statements." These statements can be identified by the use of forward-looking terminology including "may," "believe," "will," "expect," "anticipate," or "estimate." These forward-looking statements involve risks and uncertainties, and there can be no assurance that actual results will not differ materially from those expected by management of Emerge Energy Services LP. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in Emerge Energy's Annual Report on Form 10-K filed with the SEC. The risk factors and other factors noted in the Annual Report could cause actual results to differ materially from those contained in any forward-looking statement. Except as required by law, Emerge Energy Services LP does not undertake any obligation to update or revise such forward-looking statements to reflect events or circumstances that occur after the date hereof.
PRESS CONTACT
Investor Relations
(817) 865-5830
EMERGE ENERGY SERVICES LP
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands except per unit data)
| Three Months Ended March 31, | ||||||||
| 2016 | 2015 | |||||||
| Revenues | $ | 29,670 | $ | 96,244 | ||||
| Operating expenses: | ||||||||
| Cost of goods sold (excluding depreciation, depletion and amortization) | 43,790 | 66,255 | ||||||
| Depreciation, depletion and amortization | 4,907 | 3,801 | ||||||
| Selling, general and administrative expenses | 6,775 | 7,717 | ||||||
| Contract and project terminations | 4,026 | 6,719 | ||||||
| Total operating expenses | 59,498 | 84,492 | ||||||
| Operating income (loss) | (29,828 | ) | 11,752 | |||||
| Other expense (income): | ||||||||
| Interest expense, net | 4,594 | 2,837 | ||||||
| Other | (1 | ) | (21 | ) | ||||
| Total other expense | 4,593 | 2,816 | ||||||
| Income (loss) from continuing operations before provision for income taxes | (34,421 | ) | 8,936 | |||||
| Provision for income taxes | 20 | 181 | ||||||
| Net income (loss) from continuing operations | (34,441 | ) | 8,755 | |||||
| Income (loss) from discontinued operations, net of taxes | 226 | 736 | ||||||
| Net income (loss) | $ | (34,215 | ) | $ | 9,491 | |||
| Earnings (loss) per common unit | ||||||||
| Basic: | ||||||||
| Earnings (loss) per common unit from continuing operations | $ | (1.43 | ) | $ | 0.36 | |||
| Earnings (loss) per common unit from discontinued operations | 0.01 | 0.03 | ||||||
| Basic earnings (loss) per common unit | $ | (1.42 | ) | $ | 0.39 | |||
| Diluted: | ||||||||
| Earnings (loss) per common unit from continuing operations | $ | (1.43 | ) | $ | 0.36 | |||
| Earnings (loss) per common unit from discontinued operations | 0.01 | 0.03 | ||||||
| Diluted earnings (loss) per common unit | $ | (1.42 | ) | $ | 0.39 | |||
| Weighted average number of common units outstanding including participating securities (basic) | 24,159,656 | 24,128,009 | ||||||
| Weighted average number of common units outstanding (diluted) | 24,159,656 | 24,130,565 | ||||||
Adjusted EBITDA and Distributable Cash Flow
We define Adjusted EBITDA generally as: net income (loss) plus interest expense, income tax expense, depreciation, depletion and amortization expense, non-cash charges and losses that are unusual or non-recurring less interest income, income tax benefits and gains that are unusual or non-recurring. We report Adjusted EBITDA (which, as defined in our credit agreement, includes certain other adjustments) 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. The following tables reconcile net income (loss) to Adjusted EBITDA.
| Continuing | Discontinued | Consolidated (a) | ||||||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||
| Net loss | $ | (34,441 | ) | $ | 8,755 | $ | 226 | $ | 736 | $ | (34,215 | ) | $ | 9,491 | ||||||||||
| Interest expense, net | 4,594 | 2,837 | 597 | 288 | 5,191 | 3,125 | ||||||||||||||||||
| Other (income) loss | (1 | ) | (21 | ) | - | (4 | ) | (1 | ) | (25 | ) | |||||||||||||
| Provision for income taxes | 20 | 181 | 6 | 97 | 26 | 278 | ||||||||||||||||||
| Operating income (loss) | (29,828 | ) | 11,752 | (28,999 | ) | 12,869 | ||||||||||||||||||
| Depreciation, depletion and amortization | 4,907 | 3,801 | 2,354 | 2,639 | 7,261 | 6,440 | ||||||||||||||||||
| Equity-based compensation expense | 237 | 2,006 | 103 | 286 | 340 | 2,292 | ||||||||||||||||||
| Write down of sand inventory | 5,394 | - | - | - | 5,394 | - | ||||||||||||||||||
| Contract and project terminations | 4,026 | 6,719 | - | - | 4,026 | 6,719 | ||||||||||||||||||
| Provision for doubtful accounts | 1,672 | - | 36 | 38 | 1,708 | 38 | ||||||||||||||||||
| Accretion expense | 29 | 19 | - | - | 29 | 19 | ||||||||||||||||||
| Loss (gain) on disposal of equipment | - | - | - | 8 | - | 8 | ||||||||||||||||||
| Reduction in force | 76 | - | - | - | 76 | - | ||||||||||||||||||
| Adjusted EBITDA | $ | (13,487 | ) | $ | 24,297 | $ | 3,322 | $ | 4,088 | $ | (10,165 | ) | $ | 28,385 | ||||||||||
| Continuing | Discontinued | Consolidated (a) | ||||||||||
| Three Months Ended December 31, | ||||||||||||
| 2015 | 2015 | 2015 | ||||||||||
| ($ in Thousands) | ||||||||||||
| Net loss | $ | (9,779 | ) | $ | (109 | ) | $ | (9,888 | ) | |||
| Interest expense, net | 3,127 | 401 | 3,528 | |||||||||
| Other (income) loss | (1 | ) | - | (1 | ) | |||||||
| Provision for income taxes | (29 | ) | 31 | 2 | ||||||||
| Operating income (loss) | (6,682 | ) | (6,359 | ) | ||||||||
| Depreciation, depletion and amortization | 4,478 | 2,638 | 7,116 | |||||||||
| Equity-based compensation expense | (167 | ) | 104 | (63 | ) | |||||||
| Contract and project terminations | 1,308 | - | 1,308 | |||||||||
| Provision for doubtful accounts | 922 | 38 | 960 | |||||||||
| Accretion expense | 30 | - | 30 | |||||||||
| Loss (gain) on disposal of equipment | 36 | - | 36 | |||||||||
| Reduction in force | 362 | - | 362 | |||||||||
| Adjusted EBITDA | $ | 287 | $ | 3,103 | $ | 3,390 | ||||||
(a) Consolidated numbers for Interest expense, net, Other (income) loss, Provision for income taxes, Depreciation, depletion and amortization, Equity-based compensation expense, Provision for doubtful accounts and Loss (gain) on disposal of equipment include discontinued operations.
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 reconciles net income to Distributable Cash Flow.
| Three Months Ended March 31, 2016 | |||
| ($ in thousands) | |||
| Net income (loss) | $ | (34,215 | ) |
| Add (less) reconciling items: | |||
| Add depreciation, depletion and amortization expense | 7,261 | ||
| Add write down of sand inventory | 5,394 | ||
| Add contract termination charges | 4,026 | ||
| Add provision for doubtful accounts | 1,708 | ||
| Add amortization of deferred financing costs | 465 | ||
| Add equity-based compensation expense | 340 | ||
| Add unrealized loss on fair value of interest rate swaps | 255 | ||
| Add accretion expense | 29 | ||
| Add income taxes accrued, net of payments | 26 | ||
| Add project termination costs | 26 | ||
| Less maintenance capital expenditures | (119 | ) | |
| Distributable cash flow | $ | (14,804 | ) |