Emerge Energy Services LP (EMES)

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Emerge Energy Services (EMES)

Q4 2013 Earnings Conference Call

March 13, 2014 4:00 PM ET


Robert Lane - CFO

Ted Beneski - Chairman

Rick Shearer - CEO

Warren Bonham - VP


Matt Conlan - Wells Fargo

Brandon Dobell - William Blair

Selman Akyol - Stifel Nicolaus

Ethan Bellamy - Robert W. Baird

Dennis Ward - Southwest Sand



Good day ladies and gentlemen, and welcome to the Fourth Quarter 2013 Emerge Energy Services Earnings Conference Call. My name is Katina and I will be your coordinator today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today’s call Mr. Robert Lane, Chief Financial Officer of Emerge Energy Services. Please proceed.

Robert Lane

Thank you, operator. 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 may also include statements concerning anticipated cash flow, liquidity, business strategy, distributions, and other plans and objectives for future capital expenditures and operations. These statements are based on management's beliefs and assumptions.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can provide no assurances that such expectations will prove to be correct. These statements are subject to certain risks and uncertainties. If one or more of these risks materialize or should the underlying assumptions prove incorrect, our actual results may vary materially from those expected. These risks are discussed in greater detail 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 directly comparable GAAP measures in our earnings release published this morning.

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

Ted Beneski

Thanks, Rob, and good afternoon and thanks to all of you who are listening in. The fourth quarter for Emerge was a strong one and our first year as a public company exceeded most everyone's expectations.

For the year ended December 31, 2013, Emerge Energy generated $85.2 million of adjusted EBITDA compared to $38.6 million for 2012, an increase of 121% year-over-year. We've been able to significantly increase our operating cash flow by listening to and responding to our customers’ needs, broadening and deepening our customer base and expanding the suite of services we provide.

Our sand segment benefited from several factors: Number one, strong growth in demand; number two, increased plant utilization; number three, our enclosed processing facilities in Wisconsin which allowed us to produce sand even in the coldest of weather; number four, our positioning on two class 1 railroads; number five, our expanding network of logistics options which allowed us to deliver frac sands in nearly every major basin in North America and also gave us the flexibility with the railroads to maximize when incoming railcars were harder to come by.

In the fuel segment, strong margins in the wholesale fuel market and focused deployment of capital allowed our two fuel operations to generate an adjusted EBITDA well in excess of budget and plan.

Turning now to the public market performance. Our strong operating performance allowed us to end the year with the distribution of $1 per unit, which included $0.05 per unit of cash flow we had reserved in the third quarter. And we exited the year with the top-performing unit price of any energy MLP for 2013.

Regarding new initiatives, we are also well down the road in permitting two new frac sand complexes, including new mines, wet plants and dry plants that we expect to be operational as early as the fourth quarter of this year. Although we cannot disclose further details at this time, we can confirm that it is our intention that each complex will be at or near the size of our current Barron facility, and that we expect these facilities to put us on two additional class 1 railroads, both the CP and BNSF and as you know we’re already on the UP and CN.

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

Rick Shearer

Thank you, Ted. We are pleased to present another record-setting quarter for Emerge Energy. For the three months ended December 31, we sold 765,000 tons of sand, including 364,000 tons from our new Auburn facility, roughly the same as last quarter, and a record 384,000 tons from our Barron plant.

For the year we sold 2.65 million tons and ended the year at a run rate of over 3 million tons per year, well in excess of the 2 million tons we projected in our prospectus for the 12 months ending March 31, 2014. Our two Wisconsin facilities are currently operating very near their theoretical production capacity.

Our segment adjusted EBITDA was $20.6 million for the fourth quarter, more than double the 8.5 million we generated for the same period last year and an 8% improvement over the third quarter of this year. Frankly, our fourth quarter outperformed our internal projections on the back of stronger than anticipated sales.

As many of you know, this past winter was one of the harshest we've seen in two decades, especially in Wisconsin. Thanks to the fact that both of our dry plant facilities are fully enclosed, we did not have a single down production day even during the coldest days of the polar vortex. We did, however, have a tough time getting in enough railcars, a problem that was shared by our competition. Because we have the ability to operate our two Wisconsin dry plants as a single operation, we effectively gives [ph] Barron and new Auburn access to two class 1 railroads and the fantastic efforts of our operations and logistics teams, we were able to minimize the negative impact of the poor rail service by transloading our frac sand on to the rail carrier that offered our customers the best shipping option each day.

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