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Emerge Energy Services Posts Long-Awaited Profit in the Third Quarter

It was a matter of time before Emerge Energy Services (NYSE: EMES) posted a positive net income result, and the company did so this past quarter in fashion, as it blew by Wall Street expectations. Higher volume and higher prices for frack sand will do that. There was one thing missing from this quarter that investors will want sooner than later. Let's take a look at the company's most recent results and what investors should be looking for in the coming months. 

Image source: Getty Images.

By the numbers

Metric Q3 2017 Q2 2017 Q3 2016
Revenue $103.2 million $82.6 million $31.3 million
EBITDA $16.6 million $4.7 million ($17.2 million)
EPS $0.16 ($0.20) $0.21
Distributable cash flow $14.1 million $2.6 million ($13.3 million)

Data source: Emerge Energy Services earnings release. EPS= earnings per share.

Eventually, Emerge was going to catch up to its peers and post a positive net income result. The frack sand market has been great this year, as sand demand has been on the upswing and prices are going along with it. While management didn't give specific prices or per-ton margin, it did indicate both were up compared to the prior quarter. 

Yes, this time last year, the company posted a positive net income result. This time last year, the company also completed the sale of its wholesale fuels business to Sunoco LP, which netted the company a one-time gain of $35 million from discontinued operations. Absent that, Emerge had a per-share loss of $1.24.

Total sand volume produced this past quarter was 1.375 million tons, which is the same as the prior quarter. Even though it got some additional production from its Kosse and San Antonio plants, it was offset by lower volume at two of its Wisconsin facilities. These facilities are critical to Emerge's success in the coming quarters. Their proximity to major shale basins, such as the Permian Basin, Eagle Ford, and the SCOOP and STACK formations, means lower transportation costs and higher margin than the company's Wisconsin facilities. 

EMES data by YCharts.

The one stain on this quarter's results is that management elected not to declare a distribution, even though Emerge produced a decent distributable cash flow result. According to management, the company is restricted from making a distribution under its existing revolving credit agreement. The goal is to refinance some of its debt with long-term notes this quarter so that it can renegotiate this credit facility. 

What management had to say

On top of taking a bit of a victory lap in his press release statement, Chairman Ted Beneski talked about the company's upcoming debt moves and plans for expansion going into 2018.

We are continuing to make progress on our debt capital raise that will refinance our revolving credit facility and provide growth capital for the build-out of our San Antonio operation. We broke ground on construction of the phase three expansion last week, and we remain on track to have the expansion operational by early second quarter next year. As we look out to the rest of 2017 and into 2018, we believe that the business will continue to post strong results, based on sustained high demand for frack sand and continued execution of our strategic initiatives.

What a Fool believes

This quarter has to be encouraging for Emerge's investors. The company is still expanding operations, it's finally generating positive earnings results, and upcoming debt deals should allow it to get back to paying a distribution. After all, it is a master limited partnership, and the whole point of owning a master limited partnership is to receive cash distributions. 

That said, the company is still behind some of its peers in terms of profitability, and it's still trying to get its finances under control when others are on to their next phase of expansion. Hopefully, it will finally be back up to full speed in the coming quarters. 

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Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.