CEO Rick Shearer on Q4 2015 Results

Operator

Good day, ladies and gentlemen. And welcome to the Q4 Emerge Energy Services Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to turn the call over Deb Deibert. You may begin.

Deborah Deibert

Thank you, Operator. And welcome everyone to the Emerge Energy Services LP fourth quarter conference call. 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; 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 assurance 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 annual report 10-K on file with the Securities and Exchange Commission.

Please also note that on this call, we may use the terms 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

Good morning. And thank you all for joining us to discuss our fourth quarter results, the current market outlook for 2016 and our business strategy to weather this difficult time in the energy market.

The downturn has intensified during fourth quarter and many frac sand and oil field service companies as you know are reporting disappointing results as of the end of 2015. During our last call we anticipated very low fourth quarter drilling and completion activity levels. This did come to fruition with companies shutting down early once budgets were fully spent.

We have started 2016 with reloaded E&P budget but temporarily have lifted our sales volume at frac sand segment but the recent slide in crude prices has reintroduced uncertainty to produce those drilling wells and capital expenditures budget. We do not believe the market will improve until at least the end of 2016 and more likely not until the middle of 2017.

For the fourth quarter Emerge Energy generated adjusted EBITDA of 3.4 million and a distributable cash flow deficit of 932,000. Adjusted EBITDA increased to 3.4 million from negative 300,000 in the third quarter of 2015, largely due to recognition of take-or-pay shortfall revenues at 7 million and a rebound in the fuel segment performance as corrective actions materialize.

Adjusted EBITDA decreased significantly from 36.3 million in the same quarter of 2014 when we also generated distributable cash flow of $33.4 million.

Our sand segment experienced further downward pressure on pricing and volume in Q4 as the rig count continued to decline. In 2015, E&P budgets were exhausted. However, we are encouraged by several developments in the segment that we believe will help mitigate some of the market challenges.

First, proppant intensity per well continues to climb with third-party reports suggesting intensity increased sequentially by approximately 10% in the fourth quarter. We also hear evidence that operators look to further push the limits on proppant usage as it continues to generate improved returns.