Emerge Energy Services LP (EMES)

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Emerge Energy Services (EMES)

Q2 2013 Earnings Conference Call

August 14, 2013 4:00 p.m. ET


Robert Lane – Chief Financial Officer

Ted W. Beneski – Chairman of the Board

Rick Shearer – Chief Executive Officer

Warren B. Bonham – VP & Director


Douglas Becker – Merrill Lynch

Jeremy Tonet – JP Morgan

Dan Davis – Stifel



Good day ladies and gentlemen, and welcome to the Second Quarter 2013 Emerge Energy Services Earnings Conference Call. My name is Tihisha and I will be operator for today. At this time all participants all participants are in listen-only mode. Later we will conduct a question and answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host today Mr. Robert Lane, Chief Financial Officer of Emerge Energy Services, please proceed.

Robert Lane

Thank you, Tihisha. Just a quick note before we start. Our discussion today may contain forward-looking statements. These statements may include but are not limited to our estimates of future volumes, operating expenses and capital expenditures and they also include statement concerning anticipated cash flow, liquidity, business strategy and other plans and objectives for future operations. These statements are based on management believes and assumptions although we believe that the expectations reflected in such forward-looking statements are reasonable. We can provide no assurance that such expectations will prove to be correct.

These statements are subject to and uncertainties, if one or more of these risks materialize or should the underlying assumptions prove incorrect actual results may vary materially from those expected. These risks are discussed in greater in our prospectus on file with Securities and Exchange Commission. Please also note that on this call we may use the terms EBITDA, adjusted EBITDA and distributable cash flow. These are non-GAAP financial measures and we have provided reconciliations to the most direct comparable GAAP measures in our second quarter 2013 earnings release.

And now I would like to turn the call over to our Chairman, Ted Beneski.

Ted W. Beneski

Thank you, Rob and thank you to all of you who are joining us for our inaugural earnings call. We have been very pleased with our operational and financial in IPO this past May. Emerge had record results at both our sand and fuel divisions driven by strong volumes and focus on our customers and continuous operational improvements.

As we previously announced, we declared our initial distribution on July 16 of $0.37 per unit, were $0.70 per unit prorated for the quarter ended June 30, 2013. This compares to the projections contained in our IPO prospectus of $0.62 for the second quarter, where in other words we were 13% above our forecasted distribution.

As we move forward with our plan, we continue to believe that our full pay NOP model (ph) will give our investors the opportunity to see their distributions grow and believe that we will meet or possibly exceed the distribution laid out in our prospectus.

Just a few comments about the sand segment. Customers in the sand segment have reinforced our belief that our high quality core sand will continue to be a premium in demand for crude oil and liquid rich natural gas extraction industries. We continue to see growth there and demand driven by producers who are drilling more wells with their rigs, more stages per well and using more sand per stage. And we offer the same comments on the earnings calls of our customers and their customers over this most recent earnings cycle.

Our fuel segment has been able to take advantage of strong market dynamics and unique opportunities to continue to push our steady reliable EBITDA growth there as well. We were able to take advantage of the strong RIN environment for a good part of the quarter and our full pay NOP model allows us to pass that additional cash flow onto our investors.

I am happy to say that our board is considering a number of capital improvement projects. We’re moving ahead with the engineering work for a new wet plant for service to growth at Barron and we have also made additional capital improvements at our new Auburn and Barron facilities that enhance our rail loading and transloading capabilities. (Inaudible) to enhance their status to state of the art facility in the fact sand industry.

In our fuel segment we plan to build to additive systems at our two facilities which should add incremental EBITDA from both our terminal and purchasing customers. We are also looking at the next stage of our growth once the Barron facility is near capacity and we will share some of those plans with our investors at a future date.

With that I would like to turn the call over Rick Shearer, our CEO who will discuss the results of operations in our sand segment.

Rick Shearer

Thank you, Ted. This has been an extraordinary quarter for Emerge and our sand segment lead as Ted said by the strong ramp up in sales of our Northern White sand from our Barron County facility.

For the most recent quarter we sold 634,000 tons of sand including 309,000 tons from our new Auburn facility and 289,000 tons from our Barron plant. This run rate of over 2.5 million tons per year exceeds the 2 million tons we projected in our prospectus for the 12 months ending March 31, 2014 and we believe that we will exceed our annual projections for sand volume sold.

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