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Edited Transcript of EMES earnings conference call or presentation 1-Aug-18 8:00pm GMT

Q2 2018 Emerge Energy Services LP Earnings Call

Southlake Aug 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Emerge Energy Services LP earnings conference call or presentation Wednesday, August 1, 2018 at 8:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Deborah Deibert

Emerge Energy Services LP - CFO of Emerge Energy Services GP LLC

* Richard J. Shearer

Emerge Energy Services LP - CEO, President & Director of Emerge Energy Services GP LLC

* Theodore William Beneski

Emerge Energy Services LP - Chairman of Emerge Energy Services GP LLC

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Conference Call Participants

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* Lucas Nathaniel Pipes

B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst

* Selman Akyol

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Emerge Energy Services Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Deb Deibert, Chief Financial Officer. Please go ahead.

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Deborah Deibert, Emerge Energy Services LP - CFO of Emerge Energy Services GP LLC [2]

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Thank you, operator, and welcome, everyone, to the Emerge Energy Services LP Second Quarter 2018 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 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 for historical results. Please see our website for a reconciliation of our forecasted adjusted EBITDA to comparable GAAP measures.

Also, we have posted a new investor presentation under the Investor Relations portion of our website. We will be referring to this presentation throughout our call today.

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

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Theodore William Beneski, Emerge Energy Services LP - Chairman of Emerge Energy Services GP LLC [3]

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Good afternoon, and thank you, all, for joining us to review second quarter of 2018. We're pleased to say that since we last met in early May, we have continued our positive momentum with several notable accomplishments. First, we drove a strong improvement in adjusted EBITDA of 34% sequentially, attributable to higher volumes sold, higher sand prices and lower logistics costs.

Second, we signed several new take-or-pay customer contracts for our leading Eagle Ford in-basin operation San Antonio plant. Third, our NSR permit process for the San Antonio plant expansion to 4 million tons per year has gone very smoothly. So we're expecting to receive our new permit by late August, which is ahead of the previous year and guidance. And fourth, we announced a new in-basin operation in Kingfisher, Oklahoma, for the SCOOP and STACK shale play. We're very excited about expanding our in-basin footprint to become an even more balanced producer of both in-basin and Northern White sand.

Turning to the second quarter overview. We grew our total volumes sold by 6% sequentially to 1.6 million tons, which is another company (inaudible) and our frac volumes also increased by 6%. Compared to the second quarter of 2017, our total volumes sold increased by 14%.

The rail service for our Wisconsin operations improved moderately during the quarter, and our BNSF direct outlet continues to handle a heavier workload. Our Texas operations exhibited a growth in sales and production, with both Kosse and San Antonio reaching higher production levels.

However, our San Antonio production volume did not meet our internal expectations as we experienced a 2-month construction delay in finishing the new 2.4 million tons per year dry plant. We are now expecting a late August completion, which will drive a substantial San Antonio volume improvement in the third quarter. Receiving our NSR permit by late August will further boost the plant's performance for the second half of the year.

Adjusted EBITDA of $23.4 million in second quarter increased by $6 million sequentially and by $15.8 million year-over-year. The higher volumes, especially from Kosse and San Antonio, contributed to the higher overall profits and margins. Additionally, we implemented Northern White price increases in the second quarter of 2% compared to Q1 and the $4 million negative adjustment incurred in the first quarter for repayment of logistics-related rent, which was deferred during the downturn did not repeat in the second quarter.

Our consolidated net income grew by $8 million sequentially to $9.4 million in the second quarter. Deb will have more of the details on the financial results in her section.

Additionally, we are currently experiencing a minor market softness due to the Permian pipeline takeaway capacity constraints. Both we and our customers see this as a very temporary situation, which is affecting the second half of the year to continued high levels of activity witnessed in the first half of the year and our San Antonio plant should generate significantly higher profit during the second half of the year.

As for the subject of the dividend, we are striving towards that goal as expeditiously as possible. Our main limitation is our credit agreement, which prevents a dividend from taking place in 2018. But we believe we are on track to deliver again beginning in early 2019.

And now, I will turn it over to Rick.

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Richard J. Shearer, Emerge Energy Services LP - CEO, President & Director of Emerge Energy Services GP LLC [4]

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Thanks, Ted. To lead off, I'm proud of our team's outstanding achievements in the first half of the year. We are delivering solid results so far, but we have very critical work ahead of us in the second half of the year to make 2018 highly successful.

Before we dive into the details on our operational update, I want to point out a return on assets study we conducted internally to compare ourselves to our public proppant peers. Although we often hear compliments from customers and investors about how we are much more resourceful than other sand companies, our internal study verified this hypothesis as our 2017 return on long-term assets led the industry.

A few of our peers might be of larger size and bigger capital budgets, but our company was founded on a culture of resourcefulness with disciplined capital spending and yet we've still achieved a market leadership position as a top 5 producer. A great example of our capital discipline lies in the San Antonio operation. Once the plant is finished, our estimated total capital expenditures of $85 million, including the sand reserves, will be a fraction of our peers' in-basin plants of similar size. We expect to continue this trend of outperformance on a returns metric for our newest in-basin plant, the recently announced Kingfisher, Oklahoma plant.

Now turning to an update on our San Antonio operations. I'm pleased to report that we've signed several take-or-pay contracts with leading E&Ps and pressure pumpers over the last few months. The demand for this product remains very strong, and we're converting this appetite into contracted demand. We now have nearly 50% of the ultimate 4 million-plus tons per year of capacity signed under contract, and we're close to finalizing a number of other large contracts here. We expect to be over 80% contracted by the time the full capacity is available for sale, which should be by the end of Q3. By design, we want to keep roughly 20% of our San Antonio capacity open for spot market sales.

As Ted mentioned in his remarks, we experienced a 2-month construction delay on the new dry plant, but we have resumed construction and now expect this plant to be fully operational by late August. We're also very excited about the status of our NSR permit. We made it through the second public hearing period with no major comments. So we're expecting to obtain this permit in late August. Once the state officially grants us this permit, we will immediately increase output on the dryer and the current limitations on the amount of natural gas burned will be raised.

Also, we've ordered the required equipment to increase the wet and dry processing capacity to over 4 million tons per year so construction on the upgrade will begin immediately. Our target to complete this upgrade for the wet and dry plant is the end of September, and we're still expecting to come in below the construction budget of $65 million for the entire project, excluding the initial reserves purchased. We're highly confident that San Antonio will drive a marked improvement in our financial performance for the second half of this year.

Our other exciting new in-basin expansion is our Kingfisher, Oklahoma site, which we announced in early June. We secured mining rights on over 600 acres at a very attractive location in the STACK-ed portion of the MidCon basin. As illustrated on Page 16 of our investor presentation, over half of the 137 drilling rigs in Oklahoma are located within a 75-mile radius of our plant. Several competitors have announced sites further west of us, but we are the only mine in Kingfisher County, where drilling activity has been strong and should continue to grow according to several operators in the area.

Despite the competition, we view the industry as shipping -- shifting towards a micro-targeted strategy, where 50 miles within a basin makes an important difference for purchasing decisions. We decided to put capital to work in the MidCon because we see this area as an attractive growth market for 3 reasons. First, operators are demanding local 100 mesh sand they use on their well designs, and we're capitalizing on this demand by contracting with key customers. Our goal is to have the plant over 80% contracted by the end of the year.

Second, we're pushing a bundled package of Northern White sand, namely 30/50, with the local 100 mesh product. Customers are requesting a combination of the 2 products, and we have the capability to meet these needs. Third, the basin has significant growth potential for sand consumption. Industry sources estimate the basin could consume 10 million tons of sand next year, but the proppant intensity is much lower than the other leading shale basins. If operators catch up to other regions on a sand per well, the demand could exceed industry forecasts.

Not only is the MidCon an attractive market but our Kingfisher site also has attractive logistics as we are near a 4-lane U.S. highway and there is rail service within 3 miles, if we choose to develop a rail load-out option. For now, however, we expect to truck all the products to the well site.

Additionally, we expect to spend $15 million of total capital on this site, which is much less than recent announcements made by our competitors. Once again, we're minimizing the capital spend yet still aggressively expanding our business to keep up with the industry's high growth rate. Our resourcefulness in terms of structuring the mineral rights, deploying spare equipment on hand and purchasing used equipment will allow us to stay within our original 2018 total company capital budget of $90 million and still generate attractive returns. We've already submitted our permits to the state and expect to receive an approval by mid-August. Hitting this milestone will keep us on track for shipping sand out of Oklahoma by the end of the year.

Our third in-basin operation is our legacy plant located in Kosse, Texas. The performance of this facility has improved significantly this year as we produced over 200,000 tons of frac sand year-to-date, representing almost double the activity compared to the first half of last year. We're seeing strong demand from customers in the Eaglebine area, where our plant has a distinct advantage to the rigs operating in this subbasin, and the production costs here have also decreased nicely. We expect demand for this plant's product to stay strong, allowing us to invest small amounts of capital to further improve efficiencies and throughput. Expect the Kosse bottom line contribution to continue to improve.

Let's now review our current assessment of the frac sand market. We acknowledge that the industry is in a state of transition with customers demanding in-basin product in the Permian, Eagle Ford and MidCon basins, and the announced in-basin plants are ramping up utilization. However, customer interest in Northern White sand remains resilient, and we're continuing to move significant amounts of Northern White product into all the major basins. We expect to weather any disruption in Northern White, given our strong logistics capabilities into multiple basins across North America.

If you turn to Page 11 of our investor presentation, the graphic on the right side of the page illustrates our diversification of volume sold by end market. Whereas the Permian basin accounts for nearly 40% of the total market demand, we sold only 24% of our last 12 months of volume in the West Texas.

Outside of Texas and Oklahoma, we have leading positions in the Bakken, the Rockies and Western Canada, each currently accounting for up to 15% of our total volume. These 3 key markets need Northern White quality and consume a large amount of coarse sand grades. On top of this, we continue to see frequent requests for Northern White 30/50 and 40/70 even in the markets where in-basin sand consumption has become more prevalent. Nonetheless, there are signs that 100 mesh is becoming oversupplied in West Texas, freeing up Northern product to move to these other basins. As such, we're seeing some 100 mesh price pressure, which could impact our overall Northern White ASP in the second half of the year. For the third quarter, we are forecasting our total Northern White pricing to be flat compared to the second quarter. We do not yet have a clear view on Q4 Northern pricing, but we do not foresee the free-fall that some market participants are projecting.

Although, we've already partially covered the topic of logistics, we do want to highlight our logistical strengths that are aiding us in this challenging marketplace. In July, we announced a new terminal contract located in British Columbia, which is set to open later this month. This terminal in Buick allows us to more aggressively pursue the growing market in the Montney basin. Additionally, we've now finalized a new terminal contract in Wellington, Utah, located in the Uintah basin. Our Wellington transload site should position us to be a major frac sand supplier in Utah within a shared track space for unit train capabilities. This emerging shale play is beginning to accelerate in drilling activity as customers are becoming increasingly bullish on the horizontal development opportunities there.

We're now working on supplying one of our key Texas customers for their Utah needs, and other operators are interested in contracting with us for Northern White product in this emerging basin as well. These 2 new terminals represent prime examples of how we are adapting to the current market dynamics and capitalizing on our ability to ship product directly on 4 different Class I rail lines.

As we've stated before, the Northern White competitors with single rail line access will suffer first, if the Northern White capacity does exceed demand. The leading sand producers, including us with multiple rail line service and a complete set of terminals and customer contracts, will be much better positioned to handle any disruption.

The other important logistics subject is last mile. We're increasing our focus on handling this last link in the supply chain because customers are more commonly requesting a fully bundled package of sand and the related handling. This does not mean we are looking to purchase one of the many available technologies or companies. In fact, this space is becoming increasingly competitive. Rather, we will take a similar tactic that we utilize with our terminal strategy, partnering with third-party logistics experts, who own and operate the infrastructure.

We've proven this model to be effective with the terminals, and we're confident this will translate into success for the last mile. Our current collaboration with Solaris provides a nice starting point, but is by no means an only option. We are in advance discussions with other leading last-mile providers, including a major trucking company to bundle our sand and capture new business opportunities.

In closing for my section, we are proud of our accomplishments in the first half of the year, and we're very optimistic about the second half of the year. We have the right business plan in place for this dynamic market, and we're committed to executing that plan. The more we see how the market evolves of late, the more convinced we are that our model brings competitive advantages to Emerge Energy for continued success ahead.

With that, I'll turn it over to Deb to review the financials.

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Deborah Deibert, Emerge Energy Services LP - CFO of Emerge Energy Services GP LLC [5]

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Thank you, Rick. Emerge Energy reported consolidated net income of $9.4 million or $0.30 per diluted unit for the second quarter of 2018. This represents an improvement of $7.9 million compared to $1.5 million in the first quarter of 2018 or $0.05 per diluted unit. The sequential increase in our net income was driven by the improvements in volumes sold, higher sand prices and lower logistics-related costs. Additionally, we incurred several onetime charges during the first quarter that we detailed on our last quarter's call, a $3.9 million write-off of deferred financing cost, $1.1 million of debt modification expenses and a $1.7 million write-off of prepaid royalties and intangible assets. None of these recurred in the second quarter.

In the other expenses and income line item, we recognized a $200,000 mark-to-market loss on the fair value of warrants outstanding compared to a $700,000 mark-to-market gain in the first quarter. Revenue declined by $5 million sequentially to $101.8 million in the second quarter as higher volumes and prices were offset by a lower percentage of our volume sold to our in-basin terminals. This percentage declined to 39% in the first quarter to 26% in the second quarter.

Our adjusted EBITDA increased by $6 million to $23.4 million in the second quarter compared to $17.4 million in the first quarter. The same factors behind our net income increase, higher volumes sold, higher Northern White sand prices of 2% and lower logistics-related costs, these all contributed to the EBITDA improvement.

We also incurred a $4 million reversal of deferred rent expense in the first quarter that did not repeat in the second quarter. We generated $17.3 million of distributable cash flow during the second quarter compared to $8.7 million in Q1. But the Board of Directors of our general partner elected not to make a distribution for the quarter. Also, as previously disclosed, we are restricted into our current credit agreements from paying distributions in 2018.

Our capital expenditures for the second quarter totaled $25.7 million, substantially all of which was growth. Most of our growth CapEx for the quarter was directed towards the new San Antonio plant and a portion was applied to Oklahoma for equipment and construction down payment.

Now that we have spent over $55 million for capital expenditures for the first 6 months of the year, including $1 million for capitalized interest, our updated full year 2018 capital expenditures range is $80 million to $90 million.

Turning to the balance sheet. We had $3 million drawn at second quarter-end on our $75 million revolving credit facility, and our second-lien notes had principal outstanding of $215 million. We had $1 million of cash and $61 million of availability under our revolver.

Our total leverage ratio continues to improve, and the calculation was 2.96x are -- lagging 12 months adjusted EBITDA on June 30. We are currently in compliance with our financial covenants, including our minimum revolver availability, maximum total leverage and minimum fixed charge coverage ratio, as we expect to remain in compliance in the future.

Our operating cash flows were positive $25 million in the second quarter. Our total net working capital decreased by $13 million, primarily driven by a decrease in our accounts receivable balance offset by a higher inventory balance due to resumption of stockpiling Northern White sand for the winter.

Turning to the third quarter. We expect volumes to continue to improve with our new San Antonio dry plant finishing construction in late August, and we have the potential for higher production once we obtain the new permit. Northern white volume is expected to fall slightly given the slow July although orders are starting to rebound. For total volumes, we are anticipating flat to 5% growth compared to the second quarter.

As Rick mentioned earlier on Northern White pricing, we are seeing some 100 mesh pricing pressure and are anticipating flat overall northern prices, while most of our in-basin sand pricing is fixed for the rest of the year. Total revenue could be flat to slightly down due to a further decline in the percentage of total sales to our in-basin terminals.

Our production costs should decline with the higher utilization of San Antonio and a gradual phase out of the start-up related costs in San Antonio. However, our logistics discounts that we received during the downturn will be fully expired in the third quarter. With all of these pieces, we expect adjusted EBITDA margins on a per ton basis in the third quarter to be similar to the second quarter.

Finally, we are updating our full year 2018 guidance to $110 million of adjusted EBITDA and $50 million of net income. We had planned all along for 2018 to be back-end loaded, given San Antonio ramp-up schedule, but the 2-month construction delay has pushed out our time line. We still expect San Antonio to drive a substantial improvement for the second half of the year, and margins should expand materially in the fourth quarter with San Antonio achieving full utilization post-NSR permit upgrade.

Operator, we are now ready to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Lucas Pipes with B. Riley FBR.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [2]

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I wanted to follow up a little bit on the comments about the last mile. And first, do you have a -- could you share with us kind of what percentage of your volumes are currently sold with the last-mile service attached to it? And then where do you think you could take that business? And how advanced are those negotiations that you were -- or conversations that you were referencing earlier?

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Richard J. Shearer, Emerge Energy Services LP - CEO, President & Director of Emerge Energy Services GP LLC [3]

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Sure. The last mile is certainly getting more and more in demand and more and more exposure in the marketplace, particularly with E&Ps. You can imagine that they are certainly looking for this service capability. So we're ramping up our last-mile capability. The estimated amount of last-mile service that we do right now is probably something between 50% and 60%, I would estimate, at this point. There is continued growth and interest in last mile, and that's driving us to be even more definitive in our last-mile capability. I really can't get into further discussions going forward, but we are talking to a number of last-mile providers. There's a lot of interest and a lot of opportunity as far as putting an attractive partnership together, and we're working hard to put something in place there. More to come on that once we get some things finalized.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [4]

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That's good to hear. And then maybe to follow up on San Antonio and the production delays. It doesn't appear to be a major delay, but I wondered if you could maybe elaborate on kind of what happened for this to be a little bit slower than anticipated.

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Richard J. Shearer, Emerge Energy Services LP - CEO, President & Director of Emerge Energy Services GP LLC [5]

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Sure. I mean, the issue really is related to our construction contractor. He had been overwhelmed in a word, had crews strung out and had a lot of work heavily in Texas and elsewhere that allowed some of the backup. Between that and some of the issues getting some matters resolved with the county officials to continue the work forward, it ended up relating to the delay that we've seen. The good news is those issues are now largely behind us, and we're starting to track very well with the program as we had anticipated. So even as we sit here now, the numbers and the tons per day are ramping up. We'll see significant improvement in August. And as you heard us talk, we'll get the second dryer in place by September. And ultimately, with the NSR be running at full capacity in the fourth quarter.

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Lucas Nathaniel Pipes, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [6]

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Got it. Helpful. And maybe I can sneak one last one in here, just on the market. You mentioned 2 kind of dynamics. One, we have the price pressure on the 100 mesh. I was curious as to kind of your longer-term outlook, how that will play out over, say, the next 12 months. And then you mentioned the temporary demand issues and that, I think, you attribute it to the takeaway capacity in the Permian, which you viewed as more temporary. So on the first one, the 100 mesh, what's your outlook longer term? And then on the temporary issues, how quickly do you see those resolved based on your conversations with your customers?

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Richard J. Shearer, Emerge Energy Services LP - CEO, President & Director of Emerge Energy Services GP LLC [7]

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Sure. On the 100 mesh, with that product in particular being so prevalent with the added capacity coming on, you would expect there would be some competitive pressure on the pricing there, and we're not really surprised to see that. That's driving a couple of things. One is, we're starting to look to displace some of the product in other basins now, that is to move the sand, that 100 mesh that we've had in West Texas in particular into other basins. And we didn't discuss this in the prepared comments, but our sales management team has done an outstanding job of upgrading our sales team, our sales force and adding more sales people for broader coverage in all the basins that and an improvement and added staffing in our internal selling side. All of that as a way to set the table to start move -- moving more aggressively, putting more tons in some of the other attractive markets where we have strong shipping lanes from Wisconsin. And I think we mentioned this earlier, but that really means focus now on the Rockies; Utah and Wyoming; Western Canada, for sure; the Bakken and the Marcellus as well. And we're starting to already see that happen as we begin to move some of this volume more into these other basins. That's being well received, and that certainly should help us keep the pricing firm as best we can anyway on the 100 mesh. We'll see how this all plays out. As far as the short-term softness in the market, yes, we saw a catalyst here with some of the backlog moving product out of West Texas, creating a surge of inventory that spilled over into some of the other basins. The entire industry saw this, certainly not just Emerge Energy, but we did see a surprising softness over the last 30 days-or-so. The feedback we're getting right now says that the inventories are improving and the business is starting to ramp up as we head into August. So we think and from everything we know, it was just a very temporary blip on the screen. Perhaps 45 days-or-so is the expectation. But there are signs even this month that things are improving from what we saw last month.

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Operator [8]

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Our next question is from Selman Akyol of Stifel.

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research [9]

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Couple of questions, I guess. So thinking about the dividend you're restarting it in 2019, what changes? Is that just you plan to refinance? Or is that just something that was just a one year moratorium, I guess, within that credit arrangement you have?

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Deborah Deibert, Emerge Energy Services LP - CFO of Emerge Energy Services GP LLC [10]

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There was -- go ahead.

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Theodore William Beneski, Emerge Energy Services LP - Chairman of Emerge Energy Services GP LLC [11]

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No. Go ahead, Deb.

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Deborah Deibert, Emerge Energy Services LP - CFO of Emerge Energy Services GP LLC [12]

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Yes. There was a one year moratorium. And beginning in 2019, we can pay distributions, if we meet certain criteria based on the total coverage ratio, the fixed charge ratio and availability. And based in our current forecast, we do believe that we will be able to meet those criteria next year. Now there are limitations on how much we can distribute each year, but those are listed in the agreement. That's in the second-lien term note agreement that has the limitation.

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research [13]

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Okay. And then going back to the San Antonio facility, previously, how's staffing going there as you look to continue to ramp up, i.e., can you ramp up with the current number of employees? Or you guys still need additional people in order to move volumes higher out of there?

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Richard J. Shearer, Emerge Energy Services LP - CEO, President & Director of Emerge Energy Services GP LLC [14]

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No. Selman, we're going to need to add more people as we ramp up the construction. As you know, we don't have the wet plant up and running right now, but we're bringing feed in through the old wet plant and other sources. So we'll need to continue to build that staffing. Ultimately, we'll be about 100 employees when we're fully staffed and up and running full speed by October, at least. The other piece of good news is, it's gone through a lot of work and a lot of effort by our HR team and our operations management group, but we are seeing better quality. People coming on board now and with all the training we're doing and so forth. We're feeling better and better about the quality of team, the quality of people that are coming on board there. So all of this is really a timing thing. I mean, we touched on it during the entire call today that we're very optimistic about San Antonio, but it's really a timing thing of getting this thing ramped up and getting to the full potential of this operation and it's all pointed toward making that happen in the fourth quarter.

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research [15]

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Got it. And then how many people do you have there working today?

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Richard J. Shearer, Emerge Energy Services LP - CEO, President & Director of Emerge Energy Services GP LLC [16]

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I think the actual headcount today is probably about 65 people. That's my best estimate.

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research [17]

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All right. So could you just -- going back to the temporary slowdown, I know in the press release, I guess, you talked about you referred to sort of constraint takeaways and I can understand why that would lead to a slowdown less well completions, et cetera. I guess, why do you -- we don't see those constraints lifting, I guess, until next year, middle of the year to third quarter. So why do you think things get resolve before then?

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Richard J. Shearer, Emerge Energy Services LP - CEO, President & Director of Emerge Energy Services GP LLC [18]

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Well, I think part of it was just the inventory management. I can't speak for our competitors, but I can tell you we had an absolute record-breaking month in May, and a lot of sand was bought in the marketplace and inventory was build up. And in addition to the comment we made about West Texas, I think it did push the inventory levels expecting continued growth, continued demand at a very high level. And when that fell back even in the least, people had more than enough sand on hand. So there is -- we've had to catch our breath to get an inventory adjustment industry-wide, really, because it spilled out into some of the other basins, as we said. So now we're seeing that correction start to fix itself, so to speak, so that we could begin to see improved demand industry-wide again in this month and beyond for sure.

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Operator [19]

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(Operator Instructions) And I'm showing no questions at this time. I would like to turn the call back over to Mr. Ted Beneski for any further remarks.

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Theodore William Beneski, Emerge Energy Services LP - Chairman of Emerge Energy Services GP LLC [20]

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Thank you, operator. In closing, we just want to thank you for participating on the call today. We're pleased with the progress we have made in the first 6 months of the year, and we're confident that the second half of the year will be even more successful, especially with our new NSR permit materializing by late August. We're excited about the opportunity in front of us, and we look forward to speaking with you next quarter. Thank you, all.

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Operator [21]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a good day.