Adams Resources & Energy Inc. Q1 2023 Earnings Call

Good day, and welcome Adam Resources, and energy incorporated first quarter 2023 earnings call.

All participants will be in listen only mode. If you need assistance. Please signal conference specialist by person as Starkey followed by zero.

After today's presentation there'll be an opportunity to ask questions. Please note that this event is being recorded.

Like to turn the conference over to Mr. Stephen Hauser from three part advisors. Please go ahead.

Thank you and good morning, everyone. We appreciate you joining us for the atoms resources and Energy Conference call to review first quarter 2023 results. Joining me on the call today are atoms resources and energy are president and CEO , Kevin right Kraft and the company's executive Vice President and C. L.

Oh Tracy Omar.

Additionally, Greg Mills, President of Goldmark asset Holdings, and weighed Harris President of service Transport company will be joining us for the Q&A session at the end of the call.

This call is being webcast and can be accessed through the audio link on the Investor Relations page at Adams resources Dotcom.

Today's call, including the Q&A session will be recorded.

Please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading.

I'd also like to remind you that statements made in today's discussion that are not historical facts, including statements of our expectations of future events or future financial performance are forward looking statements and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Forward looking statements by their nature are uncertain and outside of the company's control actual results may differ materially from those expressed or implied please refer to the earnings press release that was issued yesterday.

Closures on forward looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.

Adams resources and energy assumes no obligation to publicly update the revisions of any forward looking statements management wolford to non-GAAP measures, including adjusted EBITDA free cash flow return on adjusted net income and earnings per share reconciliation to the nearest GAAP measures can be found at the end of.

The earnings release.

Finally.

The earnings press release was issued yesterday is posted on the Investor Relations section of our website Adams resources Dot com.

A copy of the release has also been included in the 8-K submitted with the SEC.

And now with that I would now like to turn the call over to the company's President and CEO , Kevin right graft Kevin.

Thank you Steven Good morning, all and thank you for your interest in Adam's resources I'm delighted to be hosting our first ever conference call. As we continue to create further transparency and understanding of our business to current and future shareholders.

I will start today's call with some color on the quarter and then ill turn the call over to Tracy to run through the financials.

Finally, I will return to provide additional color on outlook and the future ahead of us.

For Q1, 2023, more topline results and earnings were negatively affected by lower oil prices, Adam saw significant quarter over quarter and quarter over prior year quarter improvement.

Driven primarily by the improved performance of our Gulfport Energy Division and by the contributions of our recently acquired Phenix oil and Firebird bulk carriers entities.

Adjusted cash flow for Q1, 2023 improved by 17% over Q1, 2022 and by 38% over Q4 2022.

Adams unrestricted cash balance improved from $20 5 million at the end of Q4 2022 to.

To $42 1 million at Q1 2023 close.

This growth was achieved despite the ongoing economic challenges in today's marketplace, including continued supply chain disruptions tractor and trailer manufacturing backlogs inflation concerns declining crude oil prices and the Florida chemical production market.

Well, we did not achieve all of our Q1 goals I am pleased with the efforts of our team, including our overall ability to deliver improved cash flow in a challenging environment.

As I mentioned previously Gulfport Energy's performance was a significant contributing factor to the improved quarter.

Gulfport as volumes for the quarter were <unk> 94030 barrels per day.

This is 90000 and 385 barrels per day in the first quarter of 2022.

So Gulf Mark showed quarterly improvement, we still face headwinds as inflation and increasing costs are currently outpacing our ability to increase margins.

To bring margins back in line with historical levels go up Merck's focus moving forward will be on cost cutting and improving.

Improving crude by cell contracts and volume growth.

Additionally, the cortisol construction wrap up on our portion of the Rex pipeline connection to the Max Midstream system.

The pipeline continued its steady performance delivering an average of 10088 barrels per day to a barge loading broke location in Victoria, Texas and.

In providing efficiencies the Gulf Mark by allowing those barrels to move by pipe instead of trucks.

After a slow post acquisition start in the latter part of 2022 Feeney.

Phoenix soil and Firebird bulk carriers have begun to find their footing by contributing $1 4 million in cash flow for the quarter.

Crude oil hauling volumes for Firebird remained steady at around 25000 barrels per day.

First quarter volumes and margins for Phoenix improved over our first full quarter in Q4 2022.

In the quarter, we started to benefit from synergies that exist between the divisions. These.

These benefits include reducing dependence on third parties by beginning to bring maintenance and overflow load sharing in house.

Additionally, cross customer selling is starting to have a positive effect by bringing new opportunities to expand our offering to all the different entities.

Turning to our chemical transport Division surface Transport company.

Service transport performed well in the quarter, considering the macroeconomic challenges facing both the chemical and transportation industries.

Struggled to maintain the upward Castro trajectory it has seen over the past five years.

Overcoming the market headwinds service transfer produced positive cash flow of $2 5 million for the quarter.

Throughout the quarter surface transport and the industry overall saw pricing pressures due to chemical shipment volume drops, causing temporary excess hauling capacity in the market.

Despite these pressures surface transport has been able to capitalize on shippers rate shopping by winning new business and adding new lanes to our recently expanded footprint.

This should set service transfer up for a strong performance as a chemical markets rebound.

Overall, we believe Adams is well positioned for any potential challenges that lie ahead in 2023.

Currently there's a lot of positive activity surrounding our assets, especially around the vex pipeline and the potential synergies yet to be captured with our Phoenix and Firebird acquisitions I will touch on this later in the call.

With that I would like to turn it over to Tracy to cover the financials in more detail.

Thank you, Kevin and good morning, everyone I'm still working through some health issues with my voice. So please bear with me.

Total revenue for the first quarter of 2023 with $652 million compared to $7 74.

2 million in the prior year quarter.

The decline was primarily driven by lower revenues in our crude marketing oil segment, which revenue for this segment is directly tied to the price of oil and were partially offset by revenues related to our acquisition of Phoenix soil and fire book Firebird bulk carriers last August .

Looking at the quarter by individual segments.

First quarter revenue for our marketing segment was $608 5 million compared to $747 6 million in the prior year quarter.

The decrease is primarily due to a 21% decrease in the price of crude oil over the past year, partially offset by higher volumes.

Operating income for the quarter for the marketing segment was $1 9 million compared to $10 1 million in the first quarter of 2022.

The decrease was due to an inventory valuation loss of 1 million in this year's first quarter versus an inventory liquidation game, it's $8 7 million in the first quarter of last year as well as higher operating expenses, reflecting cost pressures across the business.

Adjusting out the inventory valuation loss in liquidation game. The marketing segment had operating earnings of $2 9 million in 2023 versus operating earnings of $1 4 million in 2022.

Our transportation segment recorded $26 4 million of revenue in the first quarter compared to $26 7 million in the prior year quarter.

Operating income was point 9 million versus $2 9 million for the first quarter of 2022.

The decrease is primarily due to higher depreciation and maintenance expenses.

Our logistics and Repurposing segment, which consist of heartburn Phoenix that required August of 2022 added $15 2 million in revenue for the first quarter of 2023.

Yeah.

$5 million of operating income.

General and administrative expenses increased by <unk> 8 million from the first quarter of 2022 to $4 8 million this quarter.

The increase was related to higher personnel and outside service costs as well as higher audit fees.

Interest expense increased to <unk> 5 million this year versus <unk> 1 million in last year's first quarter due to the term loan that we put in place as part of the repurchase of approximately one 9 million shares of our stock from KSA last year.

Net loss for the quarter was $2 million or 79 cents per share compared to net income of $6 1 million or $1 39 per.

Per diluted share on.

On an adjusted basis net loss was $1 4 million or a loss of 54 cents per share compared to a net loss of 1 million, where lots of 24 cents per share for the prior year quarter.

For the quarter cash flow from operations was $23 7 million in capital expenditures for the quarter totaled $1 9 million.

Our available cash and cash equivalents as of March 31, 2023 totaled $42 1 million compared to $20 5 million on December 31 2022.

The increase is primarily related to the timing of receipts and early payments from crude oil customers.

Total liquidity as of March 31 was $81 $7 million, which includes $39 6 million available under our $60 million credit agreements.

Now I'll turn the call back over to Kevin for some final comments Kevin.

Thank you Tracy.

Wanted to provide a little more color around our outlook for Q2 and beyond along with some comments on the activities surrounding the vex pipeline and the Phoenix and Firebird acquisitions.

<unk> pipeline connection with Max Midstream system is nearly complete Max has had some delays on this project due to weather and repairs that are being made to their own system, but we expect barrels to begin flowing through this connection in Q3.

Through our new customer introduction from our newly acquired Phoenix soil in April of this year, we started storing our first third party barrels on the backs GMT system.

We expect internal golf Mark barrels on the Vex pipeline remained steady while consistently increasing third party barrels through Max and other customers for the remainder of the year.

Yeah.

For Phoenix, and Firebird, we will continue to capitalize on synergies between the divisions.

Focusing largely on facility I T and back office integrations.

We plan to also focus on load sharing between divisions and reduction of third party maintenance expense.

On May 4th we announced the purchase of land in Dayton, Texas that will be the future home of Phoenix and Firebird.

This new location is strategically located to move the company closer to its customer base and will be the capable onsite railcar trans loading in storage.

Having onsite rail capabilities is expected to improve our efficiency reduce our dependence on third party rail translating sites and allow for more robust service offerings to our customers. We intend to begin construction on a rail spur this summer and expect to have the spur complete and operational before the end of the year.

We are excited for what the future holds for both Phoenix and Firebird.

For Gulfport can surface transport, we expect to see a challenging environment at least through Q2.

Gulf Mark needs time to realize the benefit of their cost cutting efforts and the work to improve margins for.

For surface transport projections from our customers lean towards a stronger second half of 2023.

Through our recent expansion and acquisitions surface transport has positioned itself to successfully navigate these slower markets with an eye towards coming out of this in a stronger position when the environment improves.

Yeah.

As we look forward to Q2 and the remainder of 2023, there are many unknowns in the macroeconomic environment that can cloud our vision of the future.

However, Adams has been built on a solid foundation.

We have a growing cash position and our fundamentals remain strong.

The acquisitions, we have added to this organization are highly complementary.

It will allow us to drive further success, even in challenging markets.

We expect improved performance as the year progresses, especially in the second half of 2023.

With that I would like to open the line for questions operator.

Thank you now begin the question and answer session. That's a good question.

Thats Star then one on your Touchtone phone.

We are using a speakerphone please pick up your handset before pressing the keys.

Withdraw your question. Please press Star then two.

Tom will pause momentarily to assemble the roster.

First question from Liam Burke.

Riley FBR. Please go ahead Sir.

Good morning, Kevin Good morning Tracy.

Good morning Liam.

Your costs at Gulf Mark sequentially improved from fourth quarter.

'twenty two.

They are not quite where they were a year ago, but can you give us a sense as to what you can do on the cost side too to improve those margins.

Yeah, I can start with that and we have Greg in the room too I can let him comment as well I mean, we've been meeting really flowing going back as the economy softens going back to our vendors, starting there and seeing where we can.

Capitalize on getting some rate reductions or cost improvements from there.

I do think we're looking at every aspect of our spending going back and negotiating fuel fuel is one of our largest expenses going back and renegotiating contracts for third party maintenance those are huge opportunities for us challenging to get in some environments, because especially on the maintenance side. The labor is.

Still driving higher prices fuel.

I think we're in the process of negotiating a slightly better fuel discount how are bringing in the Phoenix and firebird barrels because they usually require more volume to discount their fuel more but Greg I don't know if you have any other things we'll be working on from a ballpark perspective from a cost side.

I would say a better level of focus down to the district level.

Utilizing some tools that we put together to allow our district supervisors to look into the P&L.

For their district to see where they are on each line item of expense can you help us manage it across the whole company not this year from from the downtown office here. So really just a lot more eyes on them a lot more focus in terms of where we need to be on the opex side and I'll I'll jump on that too because I think that's the important point Greg brought up.

All of our I T upgrades that we've done over the last year and a half have allowed the district or terminal managers that golf Mark to actually see P&L and their own call center historically Gulf market have not driven down to that level of detail and our new system that we moved to allows that to happen. This is really the first year that we're holding.

Individual managers accountable to their own.

District P&L.

And I guess from your prepared comments in your press release. This is a second half event, so youre going to need second quarter to work through a lot of these details that right yeah.

I believe that's mostly right we do expect.

We expect to see slight improvements over Q1, we don't know that factually at this point, but just the way it's shaping up at this point.

But I think largely we need.

Some of the work that we're doing both from a cost reduction effort.

Trying to improve the volume from.

From golf Mark.

Capitalizing some of the synergies of Phoenix with Firebird and really what we hear from the surface transport side that the chemical markets will certainly be.

A little depressed through Q2, we sort of see the second half of the year being more bullish that the Q2. Thank you one for that matter.

Okay, and then just one final one on FX.

It had been rather quiet now it looks like its picking up with the connection of Max midstream.

Should we expect revenue to be realized in third quarter or would that be more of a fourth quarter event.

Well, we are with respect to the Max midstream.

Joint tariff project that we have going I would expect some activity in the third quarter. We will have some second quarter revenue as we've picked up some customers.

Terminalling side, we're staging somebody to begin working as a another.

VIX shipper.

System as well so some of that business started in April on the Terminalling side.

We've got some more going this month on the Terminalling side, So youll see some GMT revenue and then I believes our other shippers will start in June So we'll see some volume.

Carefully yeah, Liam I think Youll see light revenue starting in Q2, and then ramping up through the course of the year.

Thank you.

I appreciate the interest.

Thank you and the next question will be from Chris Sakai of singular research. Please go ahead.

Hi, good morning.

Good morning, Chris.

I wanted to get an idea about.

This new processing facility.

That was purchased for Phoenix soil.

What are the costs there.

This new facility.

Greg do you want take that sure.

For that one week of course, we.

Purchase the property itself for $1 $8 million with others on that.

Week, or so ago and so we actually just began working on kind of an interim step to get some initial use of Jonathan the rail siding and some tanks and there we expect to have use of the trans load facility of some tanks by the end of this year and then.

Our project spend will take place over two to three years.

In the $7 million type of range when we're done.

But we expect it will take to have the full facility running.

Are we talking about late next year or two.

Year after that 2025, and the longest but we will.

Trying to spend the money as we see fit with respect to how the business is going in and make that transition.

To date over the next three years.

Yeah, and I'll just add that the first priority is getting that rail spur belt of the tanks laid down so we could.

We can eliminate the use of the third party rail spur that Phoenix. Currently uses today, so that will be our goal for 2023 is to get that in place up and running and then eliminate that cost of the third party rail spur.

Okay. Thanks, it sounds good.

Do you have any sort of <unk>.

Forecasts are our idea for our capital expenditures for the remainder of the year.

Tracey do you want to take that.

We're working with the manufacturers because what do you think that is happening. We are seeing is other trucking companies are backing out some of the orders.

I don't have it.

Real good number at the moment, we're working through that trying to figure out timing and schedules, but.

I think we're going to see.

A good $10 million or so yet to be spent just on maintenance on our tractors and trailers, which is separate from any money that we spend on the Dayton project for the rail sport or any stuff on the facts on the connect any connection or anything like that so from a maintenance I'm gonna sample.

Kind of looking around the $10 million range is what I'm looking at Chris I'll I'll add that we are going through the process, both with way that service transporting Greg at Gulfport to re look at our budget that we put together at towards the end of 2022 from a capex spend just to make sure number one that we have what we need going forward to just make sure.

Double check that all of the items that we've earmarked in November as being necessary are still necessary for 2023, especially considering that the supply chain issues. We may have to prioritize what we need to buy at what can we can actually get this year.

Okay, Great you mentioned supply chain issues can you comment on that or how how things there.

You know thats been.

Pretty steady issue for us over the last two years is that the trailer in the tracker manufacturing.

Manufacturers are struggling to meet their quota is cutting back our orders the preorder number of trucks, they won't be able to fill all of those all the slots like Tracey commented, we have seen some slots open up both on the trailers in the tracker building side because of cancellations and we've been able to fill in and get some equipment that.

On that side, but we just received I believe we've done recently.

Done receiving some of our 2021 orders.

The 2022 orders are still coming in right now in the 2020 threes are are we're being told or pushed into late <unk>.

Q4, Q3 Q4 this year so.

Since we will be able to stick to those timelines that was probably an encouraging sign for the future, but there is certainly still a backlog.

Okay, great. Thanks for the answers.

Thank you Chris I appreciate it.

Thank you and again if you have a question. Please press Star then one.

Next question will be from Mitchell sacks of Grand Slam. Please go ahead.

Yes.

With respect to the G&A I think you'd mentioned three things personnel costs audit and outside services.

Some of those costs are going to continue there are just some of them just go away.

Over time.

Oh, yes.

Unfortunately, the audit costs are.

Basically we're spreading those out equally over the full year. So the audit of the 23.

Financials, yes.

We recognized basically $1 12 per month and with the addition of Phoenix and Firebird.

That has increased what our audit costs are going to be so that debt.

Not a huge amount, but it is.

Fortunately the auditors arent cheap.

Some of the personnel costs I think we.

To go back on the.

Kind of Truing up some of the bonuses for the year.

<unk> bonuses are paid out really kind of after year end is complete and so I think there was just a slight uptick compared to what we had anticipated.

From where we stood at the end of the year and then outside services again, what we're doing with them is kind of reassessing all of our vendors I mean from our legal counsel for FCC Council too.

Various suppliers of.

Of different services, we use trying to see what kind of opportunities. There are if we still need those particular services. If we can do more in house, but just really kind of going through an evaluation across the board. So I don't have a good answer on weather.

Trend there is choppiness to that because at the.

With the assistance for the Sarbanes Oxley compliance you know January and February we tend to spend more money with consultants, helping us, particularly on the <unk> side that did will kind of go back to a lower level.

Because we're not we're not working on that particular project at that time so.

You know, it's a little bit of mixed, but we aren't going to be really focusing on what's necessary or how can we minimize costs or does it make some sense to do things internally.

Less reliance on third parties I will say that we have.

<unk> gotten over the hump on some of the outside services with using contractors for accounting services. We brought in some third parties to help us through the year end close.

Do some challenges in hiring and the accounting rules, but I believe this week, we will build our last spot from the accounting side. So we should see less dependence on bringing of contractors from the outside to help us with those because we should be fully staffed on the accounting side, so I see that that piece coming down here.

And with respect to golf Mark any synergies with Firebird can you talk a little bit about you know.

The third party carriage that youre doing prior to the merger or the acquisition and then what what kind of opportunity from a whether it had dollar cost perspective do you see.

On that particular business.

Yeah, Greg and I can both comment on that I think from my perspective, I don't know if I want to get into the dollar amount exactly right now, but I can tell you.

We went through our <unk>.

<unk> closed here recently, and looking just firebird and who their customers are ago Mark within the top 15.

15th to be exactly.

Right about that so I think we can do better so we just started.

Having the right communications to get Firebird and golf bark hauling fiber.

Fiber hauling for Gulfport.

Made some progress on that not enough I think Greg has some initiatives to increase the usage of Firebird as we as we turn more to third party carriers for Overclothes I'll, let you talk that.

Sure when we when we actually before we purchased <unk>.

Farmers in Phoenix.

Put a map together that shows all the locations across.

Texas that.

Firebird has trucks and mechanic shops and overlays.

<unk>, where we have golf mark stations as well as shops.

One of the things we're doing is we're going to merge those together and.

We can eliminate one to two of our <unk>.

District locations and then utilize.

Firebird shops for maintenance of our equipment. So that's a big part of it is just taking the time to get get leases moved in new people and new trucks and then another thing related to that is.

We're looking at where can firebird better help us based on where we're paying larger third party carrier builds and can we migrate some of the firebird drivers and equipment to those locations. So that we can utilize fiber for golf Merck's transportation overflow needs and then one other.

Acacia we're looking at is the aquarium terminal feeds the vex pipeline when we bring barrels in by truck to ship on the Vex pipeline and we're working with fiber to particularly stage trucks at a terminal and make.

Through a new home.

Fiber folks.

So we can.

Due to things both helped pulp mark and help feed the pipeline with some additional product one of the challenges we had on that Mitch was really driver count. So when we brought the firebird onboard I think they were around 80 98 gig driver somewhere around there and they were doing around 25000 barrels a day. So they are pretty.

The capacity was pretty much utilized we've been successful adding drivers that firebird I think we're up to a 100 to a 103 today.

<unk>.

And their volumes have remained steady or ticked up a little bit so getting we really don't want to have firebird walk away from their customer base to service golf marks.

Goal is to try to fill the empty.

Pizza Firebird, so they could provide a little additional capacity to Gulf Mark without having to walk away from our core business.

Okay.

Then last question is around the the Vex pipeline. So I think you said youre going to start to have barrels moving through it to the Max midstream in Q3.

Can you can you just talk a little about what kind of pre sales you've done from a volume perspective, and what you think the capacity.

Utilization of the capacity could be on the vex pipeline once you're really connected there and starting to sell that.

New connection.

Okay.

I think I heard presale, we haven't technically pre sold but.

We expect to see.

Up to 10000 barrels a day of additional volumes by the end of the year.

That would come from several different parties.

Some of which are one of which that was attracted to <unk> pipeline with the Max connection.

Effectively you're going to be primarily affects customer rather than a <unk> customer.

But the interest has.

Picked up quite a bit just with.

Getting the word out there that infection maxtor connecting matches.

Been a lot of money, if we comfort to build a market there.

The next pipeline provides a conduit in that so.

Youre seeing a lot more <unk>.

Activity in deal flow opportunities right now so again I think I think 10 is a good incremental target for <unk> by the end of the year and of course, we're already moving Tien tsin.

2000 barrels a day today Greg.

Greg could you touch on a little bit what's the new customer thats filling tanks.

Processes, right now where they are where they should start.

So we signed that we signed.

Deal with this new customer.

Usually what they're doing is filling the tanks.

Tori a terminal where the barge terminal is.

Connected to <unk>.

Once we get those tanks ready and Phil will move them up to the quarter a terminal at the mouth of the vex system and get that.

Going.

And then by June we should have enough volume for them to begin shipping on the pipeline. So it's not going to start out as a very large volume customer.

But steady business for us and get the barge terminal working again.

Yes.

Oh go ahead go ahead Mitch.

Can I ask.

Does the connection help golf Mark in terms of.

Better realized prices for the oil that is that at all or is that not part of that transaction.

I don't know that it helps.

I don't know if it helps cost mark from the marketing crude oil marketing business.

Other than that.

The more value, we can create with <unk> MX mix.

<unk> pipeline more valuable the golf market in general, but I don't know that from a market perspective that.

The activity that we're doing on the <unk> pipeline really impacts one way or the other with Gulfport Energy's crude oil business does.

Thanks.

Thank you Matt.

Thank you. This concludes our question and answer session I would like to turn the call back over Mr. Kevin <unk> for.

Closing remarks thank.

Thank you operator, and thank you for your continued interest in the company, we will be participating in the B Riley institutional Investor Conference in Los Angeles on May 24th of May 25, the three part advisors virtual ideas conference on June 21, and the singular conference in New York City on June 20, <unk>, we look forward to providing an update of our <unk>.

Progress when we report second quarter results in August Thank you for joining us.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yes.