Q1 2024 Adams Resources & Energy Inc Earnings Call
Yes.
Unknown Executive: Thank you.
Good morning, everyone welcome to the Adams resources and energy first quarter 'twenty 'twenty four financial results conference call.
Unknown Executive: All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Unknown Executive: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.
Unknown Executive: Please note this event is being recorded.
Unknown Executive: Now I will turn the call over to John Bosler Investor Relations at three part advisors. Please go ahead.
Unknown Executive: Good morning, everyone. Welcome to the Adams Resources and Energy first quarter 2024 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then. Please note, this event is being recorded. Now I will turn the call over to John Beisler, Investor Relations, in three parts. Please go ahead. Thank you, and good morning, everybody.
Speaker Change: And good morning, everyone welcome to the Adams resources and energy first quarter 2024 conference call Joy.
John Beisler: Thank you and good morning everyone. Welcome to the Adams Resources and Energy first quarter 2024 conference call. Joining me on the call today are Adams Resources and Energy President and CEO Kevin Roycraft and the company's EVP and CFO Tracy Ohmart. This call is also being webcast and can be accessed through the audio link on the investor relations page at AdamsResources.com. Today's call, including the Q&A session, will be recorded.
John Beisler: Joining me on the call today are atoms resources, and energy President and CEO, Kevin Wei Kraft and the company's EVP and CFO Tracy I'll Mark.
John Beisler: This call is also being webcast and can be accessed through the audio link on the Investor Relations page at Adams resources Dot com.
John Beisler: Todays call, including the Q&A session will be recorded.
John Beisler: Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements or expectations about 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. Therefore, actual results may differ materially from those expressed or implied.
John Beisler: Please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading.
John Beisler: I would also like to remind you that the statements made in today's discussions that are not historical facts, including statements of expectations or 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.
John Beisler: Forward looking statements by their nature are uncertain and outside of the company's control.
John Beisler: Actual results may differ materially from those expressed or implied.
John Beisler: Please refer to the earnings press release that was issued yesterday for our disclosures 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 or revise any forward-looking statement.
John Beisler: Refer to the earnings press release that was issued yesterday for our disclosures on forward looking statements.
John Beisler: These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.
John Beisler: Adams resources and energy assumes no obligation to publicly update or revise any forward looking statements.
John Beisler: Management will refer to certain non-GAAP measures, including EBITDA.
John Beisler: Reconciliations to the nearest GAAP measures can be found at the end of our earnings release.
John Beisler: Finally, the earnings press release, we issued yesterday it is posted on the Investor Relations section of our website.
John Beisler: A copy of the release has also been included in an 8-K submitted to the SEC.
John Beisler: Management will refer to certain non-gap measures, including EBITU. Reconciliation to the nearest gap measures can be found at the end of our earnings release. Finally, the earnings press release we issued yesterday is posted on the investor relations section of our website. A copy of the release has also been included in an 8K submitted to the FCC. Now I would like to turn the call over to the company's president and CEO, Kevin Roycraft. Okay, Kevin?
John Beisler: Now I would like to turn the call over to the company's President and CEO, Kevin Woodcraft Kevin.
Kevin J. Roycraft: John, and good morning everyone. Thank you for your continued interest in Adam. I will begin today's call with some details on the quarter before turning it over to Tracy for a more in-depth dive into the finances. I will then close the prepared remarks by discussing the outlook for the second quarter and for the full year 2020. Myself, Tracy, and our division presidents, Greg Mills and Wade Harrison, will be available for your questions at the conclusion of the prepared remarks.
Kevin J. Roycraft: Thank you John.
Kevin J. Roycraft: Good morning, everyone. Thank you for your continued interest in Adams.
Kevin J. Roycraft: I will begin today's call with some details on the quarter before turning it over to Tracy for a more in depth dive into the financials. I will then close the prepared remarks by discussing the outlook for the second quarter and for the full year 2024.
Kevin J. Roycraft: Myself, Tracey and our division Presidents, Greg Mills, and weight Harrison, who will be available for your questions at the conclusion of the prepared remarks.
Kevin J. Roycraft: Yeah.
Kevin J. Roycraft: In the first quarter, we began to see some encouraging signs of recovery in certain segments of our business, especially in the latter half of the quarter, where volumes and margins of our oil segments were much improved. We're hopeful that this trend will continue into Q2 and encourage with our current visibility. For the first quarter of 2024, the company produced $6 million in EBIT. These results include $1.8 million in earnings from inventory valuation and liquidation. This compares to $4.4 million in EBITDA from Q1 of 2023. The 2023 number includes inventory valuation and liquidation losses of approximately one million.
Kevin J. Roycraft: In the first quarter, we began to see some encouraging signs of recovery in certain segments of our business, especially in the latter half of the quarter, where volumes and margins of our oil segments were much improved.
Kevin J. Roycraft: We're hopeful that this.
Kevin J. Roycraft: This trend will continue into Q2 and encouraged with our current visibility for.
Kevin J. Roycraft: For the first quarter of 2024, the company produced $6 million in EBITDA. These.
Kevin J. Roycraft: These results include $1 8 million and earnings from inventory valuation and liquidation.
Kevin J. Roycraft: This compares to $4 4 million in EBITDA from Q1 of 2023.
Kevin J. Roycraft: The 2023 number includes inventory valuation in the liquidation losses of approximately $1 million.
Kevin J. Roycraft: I'm generally pleased with the direction the business is headed, even with the continued economic headwinds we face. Cash and Liquidity continued their positive trend showing improving positions over the last three quarters. Cash improved 10% over Q4 2023 as we ended the first quarter with $36.6 million in unrestricted cash. Liquidity improved $3.3 million over the fourth quarter of 2023 from $80.3 million to $83.6 million. We were able to deliver these improvements while still achieving our stated goal of accelerating payments towards our $25 million term loan that was used to repurchase KSA's share ownership in October of 2022. Additionally, during the quarter, we made additional principal payments of $2 million. The balance on the loan at the end of Q1 was approximately 19.5 minutes.
Kevin J. Roycraft: I am generally pleased with the direction the business is headed even with the.
Kevin J. Roycraft: Continued economic headwinds we face.
Kevin J. Roycraft: Cash and liquidity continued their positive trend showing improving positions over the last three quarters.
Kevin J. Roycraft: Cash improved 10% over Q4 2023, as we entered the first quarter was $36 6 million in unrestricted cash.
Kevin J. Roycraft: Liquidity improved $3 3 million over the fourth quarter of 2023 from $80 3 million to $83 6 million.
Kevin J. Roycraft: We were able to deliver these improvements while still achieving our stated goal of accelerating payments towards our $25 million term loan that was used that was used to repurchase the KSA share ownership in October of 2022.
Kevin J. Roycraft: Additionally, during the quarter, we made additional principal payments of $2 million the balance on the loan at the end of Q1 was approximately $19 5 million.
Kevin J. Roycraft: Gulfwark Energy's legacy area truck volumes, which include South Texas, Michigan, and Louisiana, steadily ramped up as the quarter progressed, adding nearly 6,000 barrels a day. Along with these improving volumes, we were able to maintain strong quarter over quarter margin. Turning to the VEX pipeline, volumes on the line continued the recent positive trends, as we saw barrel counts improve by 20 percent on a sequential quarter basis to an average of 11,260 barrels per day in Q1.
Kevin J. Roycraft: Gulfport Energy's legacy area truck volumes, which include South, Texas, Michigan, and Louisiana steadily ramped up as the quarter progressed, adding nearly 6000 barrels a day.
Kevin J. Roycraft: Along with these improving volumes, we were able to maintain strong quarter over quarter margins.
Kevin J. Roycraft: Turning to the Vex pipeline volumes underlying continued their recent positive trends as we saw barrel counts improve by 20% on a sequential quarter basis to an average of 11260 barrels per day for Q1.
Kevin J. Roycraft: This growth was primarily driven by our Gulfmark Energies Division's ability to route much of their increased volume through the back. As a reminder, moving these barrels via pipeline instead of transporting them by truck improves safety, internal profitability on the line, as well as strengthen Skullf Marks margins.
Kevin J. Roycraft: This growth was primarily driven by our Gulfport Energy's divisions ability to route much of their increased volume through the banks.
Kevin J. Roycraft: As a reminder, moving these barrels via pipeline instead of transporting them by truck improves safety internal profitability on the line as well as strengthen sculpt marks margins.
Kevin J. Roycraft: VEX's terminal location in Victoria, Texas, also saw third-party activity resume as our customer was successful in securing barrels in the quarter and began building back inventory with intentions to restart barging operations in the second quarter. Phoenix Oil, our hydrocarbon repurposing segment, experienced a slowdown during the quarter due to reduced truck deliveries of fuel oil, one of their primary products. We expect this slowdown to be temporary, lasting until the back half of Q2 before resuming again in Q3. I will provide further detail on Phoenix's plan to combat this later in the Outlook section of this call.
Kevin J. Roycraft: Texas terminal location in Victoria, Texas also saw third party activity resume as our customer was successful in securing barrels in the quarter and began building back inventory with intentions to restart barging operations in the second quarter.
Kevin J. Roycraft: Phoenix oil our hydrocarbon Repurposing segment experienced a slowdown during the quarter due to reduced truck deliveries of fuel oil one of their primary products.
Kevin J. Roycraft: We expect this slowdown to be temporary lasting until the back half of Q2 before resuming again in Q3.
Kevin J. Roycraft: I will provide further detail on Phoenix is planning to combat. This later in the outlook section of this call.
Kevin J. Roycraft: Recently purchased crude oil hauler, Firebird bulk carriers, had a favorable start to the year, largely driven by improved volumes and recent rate increases taking hold. Firebird saw record volumes in the quarter, hauling nearly 3 million barrels. This was a 7% improvement over Q4 2023 and a 24% improvement over the same quarter a year ago. However, the soft market for service transport, our over-the-road chemical hauling division, continued in the first quarter. STC did experience a sequential increase in volume and mileage. However, rate levels remained depressed due to shippers successfully demanding rate reductions throughout the course of last year.
Kevin J. Roycraft: Our recent our recently purchased crude oil hauler Firebird bulk carriers had a favorable start to the year.
Kevin J. Roycraft: Largely driven by improved volumes and recent rate increases taking hold.
Kevin J. Roycraft: Firebird saw record volumes in the quarter hauling nearly 3 million barrels. This was a 7% improvement over Q4 2023 and.
Kevin J. Roycraft: And a 24% improvement over the same quarter a year ago.
Kevin J. Roycraft: The soft market for service transport our over the road chemical hauling division continued in the first quarter.
Kevin J. Roycraft: FTC did experience a sequential increase in volume and mileage however rate levels remain depressed due to shipper successfully demanding rate reductions throughout the course of last year.
Kevin J. Roycraft: The spike in demand is encouraging, and if this demand can be sustained, it should allow for rate-increased negotiations in the back half of the year. I will touch on the outlook for Q2 and 2024 later, but now I'll turn the call over to Tracy for a deeper dive into the financials.
Kevin J. Roycraft: The spike in demand is encouraging and if this demand can be sustained it should allow for rate increase negotiations in the back half of the year.
Kevin J. Roycraft: I will touch on the outlook for Q2 in 2024 later, but now I'll turn the call over to Tracy for a deeper dive into the financials Tracy.
Tracy E. Ohmart: Thank you, Kevin, and good morning, everyone. Total revenue for the first quarter of 2024 was $661.1 million, compared to $650.2 million in the prior year quarter. The increase was primarily driven by an increase in the market price of crude oil, partially offset by lower crude oil volume. The increase in crude oil prices was primarily due to continued uncertainty in the Chinese economy, geopolitical tensions in the Middle East, and continued concerns over economic recession, which caused crude oil prices to fluctuate.
Tracy: Thank you Kevin and good morning, everyone total revenue for the first quarter of 2024 was $661 1 million compared to $652 million in the prior year quarter the.
Tracy E. Ohmart: The increase was primarily driven by an increase in the market price of crude oil, partially offset by lower crude oil volumes. The increase in crude oil price was primarily due to continued uncertainty in the Chinese economy geopolitical tensions in the middle East and continued concerns over economic recession.
Tracy E. Ohmart: Which caused crude oil prices to fluctuate.
Tracy E. Ohmart: Now let's look at the quarter by individual segments. First quarter revenues for the marketing segment were $623.8 million compared to $68.5 million in the prior year quarter. Operating income for the quarter for the marketing segment was $6.7 million compared to $1.9 million in the first quarter of 2023. The increase is due to inventory valuation changes and an increase in the average market price of crude oil and lower operating expenses in the 2024 period. Our transportation segment reported $23.2 million of revenue in the first quarter, compared to $26.4 million in the prior year quarter. Operating income was $213,000 versus $901,000 for the first quarter of 2023.
Tracy E. Ohmart: Now, let's look at the quarter by individual segments first quarter revenues for our marketing segment were $623 8 million compared to 608.
Tracy E. Ohmart: $5 million in the prior year quarter.
Tracy E. Ohmart: Operating income for the quarter for the marketing segment was $6 7 million compared to $1 $9 million in the first quarter of 2023. The increase is due to inventory valuation changes and an increase in the average market price of crude oil and lower operating expenses in the 2024 period.
Tracy E. Ohmart: Our transportation segment reported $23 $2 million of revenue in the first quarter compared to $26 4 million in the prior year quarter.
Tracy E. Ohmart: Operating income was $213000 versus 901000.
Tracy E. Ohmart: For the first quarter of 2023.
Tracy E. Ohmart: The decrease is primarily due to a decrease in volumes and transportation rates during 2024 as a result of the softening of the transportation market. Our logistics and repurposing segment revenues, which consists of Fireburn Phoenix that we acquired in August of 2022, were $14 million compared to $15.2 million in the prior year quarter. Firebird's revenues increased primarily due to increased transportation rates and volumes, while Phoenix's revenues decreased due to lower volumes
Tracy E. Ohmart: The decrease was primarily due to decrease in volumes and transportation rates. During 2024 as a result of the softening in the transportation market.
Tracy E. Ohmart: Our logistics and Repurposing segment revenues, which consists of Firebird Phoenix that we acquired in August of 2022 were $14 million compared to $15 $2 million in the prior year quarter.
Tracy E. Ohmart: <unk> revenues increased primarily due to increased transportation rates and volumes, while Phoenix as revenues decreased due to lower volumes and activity.
Tracy E. Ohmart: The segment reported an operating loss of $1.5 million compared to $535,000 in income in the prior year quarter. General and Administrative expenses were $4.8 million for both the first quarter of 2024 and 2023, with higher outside service costs, audit fees, and legal fees offset by lower banking fees, insurance costs, and director fees. Interest expense increased to $793,000 for the first quarter of 2024 versus $696,000 for the prior year quarter, primarily due to higher interest rates over the past 12 months, partially offset by a lower loan balance compared to the prior year quarter under the accredited agreement and additional finance leases that were put in place during the course of last year. The net loss for the quarter was $498,000, or 19 cents per share, compared to a net loss of $2 million, or 79 cents per share, in the first quarter of 2023.
Tracy E. Ohmart: The segment reported an operating loss of $1 5 million.
Tracy E. Ohmart: Compared to $535000 of income in the prior year quarter.
Tracy E. Ohmart: General and administrative expenses were $4 $8 million for both the first quarter of 2024, and 2023 with higher outside service costs audit fees legal fees offset by lower banking fees insurance costs and director fees.
Tracy E. Ohmart: Interest expense increased to $793000 for the first quarter of 2024 versus $696000 in the prior year quarter, primarily due to higher interest rates over the past 12 months, partially offset by a lower loan balance compared to the prior year quarter.
Tracy E. Ohmart: Under the credit agreement and additional finance leases that were put in place during the course of last year.
Tracy E. Ohmart: Net loss for the quarter was $498000 or <unk> 19 per share compared to a net loss of $2 million or <unk> 79 per share in the first quarter of 2023.
Tracy E. Ohmart: For the quarter, cash provided from operating activities was $13.1 million compared to $23.7 million in the prior year. This decrease was a result of an increase in the price of our crude oil inventory and a 23% increase in the number of barrels held in inventory. Capital expenditures for the quarter totaled $6.2 million, primarily for the purchase of 17 tractors, 13 trailers, and other field equipment. Our available cash and cash equivalents as of March 31, 2024 totaled $36.6 million compared to $33.0 million on December 31, 2021. 2023. Total liquidity as of March 31 was $83.6 million versus $80.3 million in the prior quarter. Now, I'll turn the call back over to Kevin for some final comments. Thank you, Tracy.
Tracy E. Ohmart: For the quarter cash provided from operating activities was $13 1 million compared.
Tracy E. Ohmart: Compared to $23 7 million in.
Kevin: In the prior year this.
Tracy E. Ohmart: This decrease was the result of an increase in the price of our crude oil inventory and a 23% increase in the Denver barrels held in inventory.
Tracy E. Ohmart: Capital expenditures for the quarter totaled $6 $2 million primarily.
Tracy E. Ohmart: Primarily for the purchase of 17 tractors 13 trailers and other field equipment.
Tracy E. Ohmart: Our available cash and cash equivalents as of March 31, 2024 totaled $36 6 million compared to $33 million on December 31.
Tracy E. Ohmart: 2023.
Tracy E. Ohmart: Total liquidity as of March 31 was $83 6 million versus $80 3 million in the prior quarter.
Tracy E. Ohmart: Now I'll turn the call back over to Kevin for some final comments Kevin.
Kevin J. Roycraft: Turning to our outlook for the second quarter and for the full year 2024, as all divisions are continuing their work to control costs and improve operational efficiency. We are seeing signs that the markets we serve are awakening, even with drilling activities slowing in our legacy area. Gulfmark has experienced steadily improving volumes throughout the year while maintaining its, and we expect that trend to continue into the second quarter. GoFMARC's increasing volumes also should have a positive effect on the results for the VEX pipeline, as we have been able to route much of the increased oil volume through the line this year.
Kevin: Thank you Tracy.
Kevin: Turning to our outlook for the second quarter and for full year 2024.
Kevin J. Roycraft: As all divisions are continuing to work to control costs and improve operational efficiencies. We are seeing signs that the markets. We serve are awakening evenly.
Kevin J. Roycraft: Even with drilling activity slowing in our legacy areas Gulfport has experienced steadily improving volumes throughout the year, while maintaining their margins.
Kevin J. Roycraft: We expect that trend to continue into the second quarter.
Kevin J. Roycraft: Gulf marks increasing volumes also should have a positive effect on the result on the results for the <unk> pipeline as we've been able to route much of the increased oil volume through the line this year.
Kevin J. Roycraft: This ability allows VEX to improve internal cash flows and helps reduce Gulfmark's costs by shipping more barrels via pipeline versus the expense of trucking barrels. Also, our third-party customer that utilizes the VEX Victoria, Texas barge loading terminal has started consolidating barrels again in our storage tanks, and their barge shipments should resume in Q2. Our hydrocarbon repurposing business, Phoenix Oil, will most likely continue to experience soft results in Q2 as our fuel oil business transitions from delivering by truck deliveries to mostly by bar.
Kevin J. Roycraft: This ability allows <unk> to improve internal cash flows and helps reduce Gulf marks caused by shipping more barrels via pipeline versus the expense of trucking barrels.
Kevin J. Roycraft: Also our third party customer that utilizes the Vex Victoria, Texas barge loading terminal has started consolidating barrels again and our storage tanks and rebar shipments should resume in Q2.
Kevin J. Roycraft: Our hydrocarbon Repurposing business Phoenix oil will most likely continue to experience soft results in Q2, as our fuel oil business transitions from delivering by truck deliveries to mostly by barge.
Kevin J. Roycraft: Later this quarter, Phoenix expects to sign an agreement with a terminating location in the Houston area, so delivery is expected to start in late Q2 or early Q3. Phoenix recently broke ground on our 11-acre land purchase in Dayton, Texas, which will be the future home of Phoenix Oil.
Kevin J. Roycraft: Later this quarter Phoenix expects to sign an agreement with the Terminalling location in the Houston area, what's barge deliveries expected to start in late Q2 or early Q3.
Kevin J. Roycraft: Phoenix recently broke ground on our 11 acre land purchase in Dayton, Texas, which will be the future home of Phoenix soil.
Kevin J. Roycraft: We are targeting to have the rail spur on this property operational late in 2024. An operational rail Spur will improve costs and efficiencies for Phoenix by reducing the expense of trucking the product from our current leased rail location to our current storage location that is 24 miles west in Humboldt, Texas. The new spur will allow for unloading of product from railcars directly into our stores. This will eliminate the trucking cost and rail lease expense associated with this business and significantly improve operational efficiency.
Kevin J. Roycraft: We are targeting to have the rail spur on this property operational late in 2024.
Kevin J. Roycraft: And operational rail spur will improve cost and efficiencies for Phoenix by reducing the expense of trucking the product from our current leased rail location to our current stores location that is 24 miles west of novel, Texas.
Kevin J. Roycraft: The new spur will allow for unloading of product from railcar directly into our storage tanks.
Kevin J. Roycraft: This will eliminate the trucking cost and rail lease expense associated with this business and significantly improve operational efficiencies.
Kevin J. Roycraft: We expect full completion of the project, which will move all of Firebird's trucking operations on site late in 2025. Speaking of Firebird, the crude oil trucking operation saw volumes increase steadily throughout the first quarter and recorded record monthly volumes in March.
Kevin J. Roycraft: We expect full completion of the project, which will move all of Firebirds trucking operations on site late in 2025.
Kevin J. Roycraft: Speaking of Firebird, the crude oil trucking operation Salt volumes increased steadily throughout the first quarter and recorded record monthly volumes in March.
Kevin J. Roycraft: This, along with a series of positive rate adjustments, led to much improved results as the quarter progressed. Early Q2 returns show this trend holding, and we are optimistic this trend will hold for the balance of the year if crude oil volumes can remain at steady levels. Late in the first quarter and continuing into the early stages of Q2, our Chemical Transportation Division, Service Transport, began to see capacity tighten in pockets of its service area.
Kevin J. Roycraft: This along with a series of positive rate adjustments led to much improved results as the quarter progressed.
Kevin J. Roycraft: Early in early Q2 returns. So this trend holding and we are optimistic this trend will hold for the balance of the year if crude oil volumes can remains at steady levels.
Kevin J. Roycraft: Late in the first quarter and continuing into early stages of Q2, our chemical Transportation Division service transport began to see capacity tighten and pockets of their service area.
Kevin J. Roycraft: In the upcoming quarters, STC will need to work to add drivers to meet this increasing demand and then begin the process of targeted rate increases to offset the rate reductions we incurred over the past year. STC is well-placed to take advantage of a recovering chemical market. In closing, I'm not yet ready to say that market recovery is imminent. However, I am encouraged by the prospect of improving markets across all of our divisions as we have seen in recent months.
Kevin J. Roycraft: In the upcoming quarters, they will need to work to add drivers to meet this increasing demand and then making the process of targeted rate increases to offset the rate reductions we incurred over the past year.
Kevin J. Roycraft: STC is well placed to take advantage of a recovering chemical market.
Kevin J. Roycraft: In closing I am now.
Kevin J. Roycraft: Not yet ready to say that a market recovery as eminent however.
Kevin J. Roycraft: However, I am encouraged with the prospect of improving markets across all of our divisions that we have seen in recent months.
Kevin J. Roycraft: I am convinced the actions we have taken in response to the economic headwinds faced over the past year have made us a more cost-effective and efficient company, and that Adams is well-positioned to capitalize on the opportunities in front of it, drive improved results, and deliver long-term value to shareholders. Lastly, we will be participating in the Three-Part Advisors Ideas Conference in New York City on June 13. Qualified investors that would like to attend or schedule a meeting with Tracy and me should contact Three-Part Advisors. With that, I would like to open the line for questions. Operator?
Kevin J. Roycraft: I am convinced the actions we have taken in response to the economic headwinds faced over the past year have made us a more cost effective and efficient company.
Kevin J. Roycraft: And then Adams is well positioned to capitalize on the opportunities in front of us driving improved results and deliver long term value to shareholders.
Kevin J. Roycraft: Lastly, we will be participating in the three part advisors are tier ideas conference in New York City on June 13th.
Kevin J. Roycraft: Qualified investors that would like to attend or schedule, a meeting with Tracey and I should contact three part advisors.
Kevin J. Roycraft: With that I would like to open the line for questions operator.
Operator: We will now begin the question and answer session. To ask a question, please press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Liam Burke with B Reilly. Please go ahead. Thank you.
Kevin J. Roycraft: We will now begin the question and answer session.
Liam Dalton Burke: To ask a question.
Operator: Please press Star then one on your telephone keypad.
Operator: If you are using a speaker phone please pick up your handset before pressing the keys.
Operator: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Operator: Yeah.
Operator: The first question comes from Liam Burke with B Riley. Please go ahead.
Liam Dalton Burke: Thank you. Good morning, Kevin. Good morning, Tracy, or Leon and Liam. Kevin, on the Gulfmark business, margins were up nicely from a year ago. Exit from Red River Trucking, help.
Liam Dalton Burke: Thank you and good morning, Kevin Good morning Tracy.
Liam Dalton Burke: And Liam.
Liam Dalton Burke: Kevin on the Gulfport.
Liam Dalton Burke: Gulfport business margins were up nicely from a year ago.
Liam Dalton Burke: Did they.
Liam Dalton Burke: Exit from Red River trucking help at all on that.
Kevin J. Roycraft: No, I won't. I wouldn't say that would be the case. I mean, Red River really is a series of events where our contract was expiring, and we were not able to come to terms on a rate agreement with Red River. But it was really a separate environment for us in that the margins at Gulfwark really sort of stand on their own. I'll let Greg maybe comment on that too, if you'd like
Speaker Change: No I won't I wouldn't say that would be the case I mean Red River Road.
Kevin J. Roycraft: <unk>.
Kevin J. Roycraft: Series of events or a contract was expiring we were not able to come to terms on a rate agreement with Red River, but it was really a separate environment for us and that the margins at Gulf Park really sort of stand on their own I'll, let Greg maybe comment on that too.
Kevin J. Roycraft: Yes.
Greg L. Mills: I'd say margins are strong in the first quarter, maybe a little better than last year, but a lot of focus on cost control. We've dashboarded our business, as we're watching all of our expenses very closely and really dialed in on the marketing side, providing the high-value customer relationship that our guys do, and just things are running smoothly. Crude price ran during the first quarter, didn't hurt us too bad, so things are just kind of moving along steadily. Yeah, and Liam, we also operated a separate P&L internally for the Red River business, so they really operated and were run separately, so we didn't have any crossover there.
Greg: <unk> margins are strong in the first quarter, maybe a little better than last year, but a lot of focus on cost control.
Greg L. Mills: Dashboard and our business is we're watching all of our expenses very closely.
Greg L. Mills: And really.
Greg L. Mills: Dialed in on the marketing side, providing the high value customer relationships that our guys do.
Greg L. Mills: Just things are running smoothly crude prices not ran during the first quarter.
Greg L. Mills: It didn't hurt us too bad so things are just kind of moving along steadily.
Speaker Change: Yes, Liam we.
Greg L. Mills: Also operated a separate P&L internally for the Red River business. So they really operated in more run separately. So we didn't have any crossover there.
Liam Dalton Burke: Okay, and on STC, revenues are down about 12%, but volumes are down, I mean, mileage is only down about four, so obviously, you'd highlighted this in the past that pricing was getting tough on a weak chemical market. Kevin, I think you said that that is starting to reverse itself as we move through the year. Did I get that right?
Speaker Change: Okay cool.
Liam Dalton Burke: S. T C revenues were down about 12%, but volumes down.
Liam Dalton Burke: Mileage only down about four so obviously you had highlighted this in the past that that pricing was getting top line and a weak chemical market.
Liam Dalton Burke: Kevin I think you said that that is starting to reverse itself as we move through the year did I get that right yet.
Kevin J. Roycraft: Yeah, we're seeing some volumes, especially in certain pockets, the Gulf Coast, Louisiana, and Texas, starting to pick up and seeing some capacity tighten. The spot market rate for chemical shipping has improved; rates have improved a little bit. The challenge for us is, you know, these big shippers, the major chemical producers, have gone through a very long and extensive RFP process to get new rates in place. A lot of those got in place, you know, in the fourth quarter or were effective early in the first quarter, and they're not going to just turn around and start renegotiating that because they just really upset their whole market.
Kevin: Yes, we're seeing some volumes, especially in certain pockets Gulf Coast, Louisiana, Texas Star.
Kevin J. Roycraft: Starting to pick up and seeing some capacity tightened.
Kevin J. Roycraft: The spot market rate for chemical shipping has improved rates have improved a little bit the challenge for us as you know these big shippers the major chemical producers have gone through a very long and extensive RFP process to get new new rates in place a lot of those got in place in the fourth quarter.
Kevin J. Roycraft: Or were effective early in the first quarter and Theyre not going to just turn around and start renegotiating that because they just really upset their whole that whole market. So.
Kevin J. Roycraft: So as we see capacity tighten and we see market rates continue to get better, that's our hope, at least, then we'll be able to go back and ask for more substantial rate increases. But I don't see that happening until we get a little farther into the year. And if things get better, shippers will really need to add capacity, and once they get to the point where they can't get loads covered, they'll be seeking... rates become less of an issue for them. So we'll look at that. We're not quite there yet, but we're hopeful we can get there if the market continues to trend in the right direction.
Kevin J. Roycraft: As we see capacity tighten and we see the market rates continue to get better that's our hope at least.
Kevin J. Roycraft: Then we'll be able to go back and ask for more substantial rate increases, but I don't see that happening until we get a little further into the year and if things get better shippers will really need to.
Kevin J. Roycraft: Add capacity and once we get to the point, where they can't get loads covered.
Kevin J. Roycraft: There'll be seeking your rates become less of an issue for them. So we will look at that we're not quite there yet, but we're hopeful we can get there if the market continues to trend in the right direction.
Liam Dalton Burke: Great, and if I can just slide in one more on logistics, driver commission was up... Substantially year over year, on lower revenue. What factored into that?
Speaker Change: Great and if I can just slide in one more on logistics.
Liam Dalton Burke: Driver Commission was up.
Liam Dalton Burke: Substantially year over year.
Liam Dalton Burke: On lower revenues.
Liam Dalton Burke: What factored into that.
Kevin J. Roycraft: Are you looking at the Firebird business in particular? Yes.
Liam Dalton Burke: Are you are you looking at the Firebird business in particular.
Kevin J. Roycraft: Yes.
Kevin J. Roycraft: Yeah, so the biggest piece of that is the number of drivers we've added. So when we acquired Firebird, I think we had what, 96 drivers, 97 drivers, and we're up over 123 now, really to capitalize on some opportunities that we've had from new shippers in that business. So we're pretty bullish on the direction the Firebird business is going. We had a little quality of revenue issue that we're addressing through our first round of rate increases, which I think all got in place in March, and we expect that to continue to trend in the right direction. And we're continuing to add drivers. We'd like to be in excess of 120, 130 drivers there.
Kevin J. Roycraft: Yes, so the biggest piece of that is the number of drivers. We've added so when we acquired Firebird I think we had 96 drivers 97 drivers and we're up over 123 now.
Kevin J. Roycraft: To capitalize on some opportunities that we've had from new shippers in that business. So we're pretty bullish on the direction of the Firebird business is going we had a little quality of revenue issue that we're addressing through our first round of rate increases, which I think all got in place in March.
Kevin J. Roycraft: And we expect that to continue to trend in the right direction and we're continuing to add drivers we'd like to be at.
Kevin J. Roycraft: In excess of 120 530 drivers there.
Liam Dalton Burke: Great. Thank you very much. Thank you.
Speaker Change: Great. Thank you very much.
Kevin J. Roycraft: Thank you, Liam. I appreciate the support.
Speaker Change: Thank you Lee I appreciate the support.
Kevin J. Roycraft: Yeah.
Operator: The next question is from Jason Ursaner with Bumbershoot Holdings. Please go ahead.
Kevin J. Roycraft: The next question is from Jason <unk> with Bumbershoot Holdings. Please go ahead.
Jason M. Ursaner: Good morning. Congratulations on the progress you're making, and Kevin, I really appreciate the details on all of them at the end. Just a quick one following up on Liam, on the chemical side, so when you're saying it's tightening a bit, is that more anecdotal in what you're seeing, or is that actually in kind of the volumes and the pricing outside of, you said sort of the major, major customers or major chemical shippers in general?
Jason M. Ursaner: Good morning.
Jason M. Ursaner: That's on the progress, you're making and Kevin really appreciate the details kind of on all of them at the end just a quick one kind of following up on land.
Jason M. Ursaner: Yes.
Jason M. Ursaner: On the technical side. So when you when you are saying its tightening of it is that.
Jason M. Ursaner: More anecdotal and what youre seeing or is that actually in kind of the volumes and the pricing outside of kind of you said sort of the major.
Jason M. Ursaner: Major customers are major chemical shippers in general.
Kevin J. Roycraft: Maybe I'll pass that to Wade, our president of that division, since he's living it every day. Wade, could you take that one?
Jason M. Ursaner: Maybe I'll pass that to Wade our president of that division since he's living in everyday weighted could you take that one.
Wade M. Harrison: Yeah, what we're seeing is, you know, most of our major chemical customers are starting to produce more volumes than they had in the past. And so, we, over the past, probably through 2023, we kind of reduced our overall driver count, as did a lot of other carriers.
Wade: Yeah, what we're seeing.
Wade M. Harrison: Most of our major chemical customers are starting to produce more volumes than they had in the past and so we over the past probably through 2023, we've kind of reduced our overall driver count.
Wade M. Harrison: And as Ed.
Wade: Lot of other carriers and so it's a combination of volumes slowly steadily creeping up and not having enough drivers to capitalize on those increased volumes and so as this continues you know the old adage of Haddon, adding drivers to the fleet.
Wade M. Harrison: And so, it's a combination of volumes slowly, steadily creeping up, and not having enough drivers to capitalize on those increased volumes. And so, as this continues, you know, the old adage of adding drivers to the fleet, and so they kind of go hand in hand. And so, we're starting to beef up our hiring efforts as these volumes continue, and I think it'll steadily progress as the year goes on. So, as we continue to see volumes improve, we'll add more headcount and be able to capitalize on these increased volumes.
Wade M. Harrison: So they kind of go hand in hand, and so we're starting to beef up our hiring efforts.
Wade M. Harrison: As these volumes continue and I think it will steadily progressed as the year goes on.
Wade M. Harrison: So as we continue to see volumes improve we'll add more head count NBA.
Wade M. Harrison: And be able to capitalize on these increased volumes.
Jason M. Ursaner: Okay, and just generally, I guess, what do you guys see driving the increase? You know, I guess my perception is a lot of it's general economic activity, which there's kind of a mixed message, you know, what do you see application wise, it's kind of driving the increased volumes right now in chemicals.
Speaker Change: Okay, and just generally I guess, what do you guys see driving the increase or is it just I guess my perception is a lot of it is general economic activity, which there's kind of a mixed reads.
Jason M. Ursaner: What are you seeing application wise, what's kind of driving the increased volumes right now in chemical.
Wade M. Harrison: I think it's really just kind of normalization of the market. You know, over the past 12, 18 months, it's really kind of been a depressed market from historical quote-unquote normal volumes. And so it's kind of a false increase, so it's not really additional volumes; it's just kind of getting back to what's normal. For the past several years, they've been kind of running ahead of normal. We actually spent a lot of time with the major guys, and it's really just kind of getting back to a normal-type level, whereas before they were exceeding normal, and now they're just kind of turning back towards normal.
Jason M. Ursaner: Well I think it's really just kind of normalization of the market.
Wade M. Harrison: Over the past 12 to 18 months, it's really kind of been a depressed market from historical quote unquote normal volumes and so it's kind of a Boston increase so it's not really additional volumes is just getting kind of getting back to what's normal for.
Wade M. Harrison: For the past several years, they've been kind of running ahead of normal and we actually spent a lot of time with.
Wade M. Harrison: The major guys and it's really just kind of getting back to to a normal type level, whereas before they were exceeding normal and now they're just kind of turning back towards normal.
Kevin J. Roycraft: And Jason, I'll add that the main markets to focus on in the STC business are really automotive housing starts. And we have not seen a lot of good headlines in either of those areas, but we do think there's some rebuilding of inventories going on right now and some slight recoveries in those markets. But as you see them start to boom a little bit, whether it's the latex or wood treating products or, you know, foams that go into automobiles, that'll really start getting busy. But I think to get a full recovery and get back even close to where we were in 2021, those industries will have to make significant improvements.
Speaker Change: And Jason I'll add that the.
Kevin J. Roycraft: The main markets the focus on the FTC business is really auto automotive housing starts and we have not seen a lot of good headlines in either of those those areas, but we do think theres some rebuilding of inventories going on right now and some slight recoveries in those markets, but as you see them start to the boom a little bit.
Kevin J. Roycraft: Whether it's the latex or wood treating products or foams that go into the into automobiles.
Kevin J. Roycraft: That will really start getting busy, but I think they'll get a full recovery and get back even close to where we were in 2021. Those industries will have to have a significant improvement.
Jason M. Ursaner: Got it. But it sounds like kind of everything is at least on the path to maybe getting a little stronger, either in the numbers or more anecdotally, which is positive to hear. So anyway, just congrats on the progress. Appreciate all the details, and I'll hop back when someone else has questions. Thanks.
Jason: Got it but it it sounds like kind of everything is at least on the path to maybe getting a little stronger either in the numbers or more anecdotally, which is a positive to hear so alright, just congrats on the progress I. Appreciate all the details and then I'll hop back what someone else ask questions. Thanks. Thank.
Speaker Change: Thank you Jay.
Operator: Again, if you have a question, please press star then 1. The next question is from Chris Sakai with Singular Research.
Speaker Change: Again, if you have a question. Please press Star then one.
Operator: The next question is from Chris Sakai with singular research. Please go ahead.
Joichi Sakai: Hi, good morning. Just a question on...
Joichi Sakai: Hi, good morning.
Joichi Sakai: I wanted to ask a question on.
Joichi Sakai: The throughput and terminaling volumes for your pipeline segment. What should we be expecting for the next couple of quarters?
Joichi Sakai: The throughput.
Joichi Sakai: And terminalling volumes for for your pipeline segment.
Joichi Sakai: What should we be expecting for the next couple of quarters.
Greg L. Mills: I'd say more of the same. The marketing group has really targeted volumes that they can bring through the pipeline. They've been successful picking up some new production and even a few flowbacks this year. So right now, volumes have been pretty steady, and the volumes actually grew each month in the first quarter. We're kind of plateaued right now, but we think we can maintain the volumes we're at now. So I'd say more of the same that you saw in the first quarter should be about similar in the second quarter. Yeah, I think we'll see.
Joichi Sakai: I'd say.
Joichi Sakai: More of the same marketing group is really targeted.
Greg L. Mills: Volumes that they can bring to the pipeline.
Greg L. Mills: They've been successful picking up some new production and even few flow backs this year.
Greg L. Mills: So right now volumes have been pretty steady.
Greg L. Mills: The volumes actually grew each month in the first quarter and we're kind of plateaued right now, but we think we can maintain the volumes right now so I would say more of the more of the same.
Greg L. Mills: You saw in the first quarter should be about similar in the second quarter.
Kevin J. Roycraft: Yeah, I think we'll see some barging revenue from third parties start up in Q2, where they're getting close to being able to ship a barge there. That doesn't run through the line, but it does use the terminal location in our Victoria, Texas, location.
Greg L. Mills: I think we'll see some barging revenue from third party start up in Q2, where they're getting close to being able to ship a barge there that doesn't run through the line, but it does use the terminalling location and our.
Kevin J. Roycraft: Victoria, Texas location as Greg said, we've seen volumes steadily increase.
Greg L. Mills: As Greg said, we've seen volume steadily increase. Q2 should be a little stronger than Q1, or at least start out that way. And then we're still hopeful we can get third-party shipping on that line. The third-party that we've been targeting this year certainly won't be shipping in Q2, but they are still giving us positive signs and spending money fixing their line so that they may be shipping sometime before the year's out.
Greg L. Mills: Q2s is should be a little stronger in Q1, and we started out that way and then.
Greg L. Mills: We're still hopeful we get third party shipping on that line the third party that we've been targeting.
Greg L. Mills: This year, certainly won't be shipping in Q2, but they do are still giving us positive signs and spending money fixing their the airline that they may be shipping sometime before the year's out.
Joichi Sakai: Okay, thanks for that. How should we be thinking about your crude oil inventory barrels? Would you expect that to be increasing or staying the same or decreasing?
Speaker Change: Okay. Thanks for that.
Joichi Sakai: How should we be thinking about the your crude oil inventory barrels.
Joichi Sakai: Do we would you expect that to be increasing or stay the same or lowering.
Greg L. Mills: Yeah, I'll disagree. I'll take that one.
Joichi Sakai: Yes. This is Greg I'll take that one.
Speaker Change: The crude oil inventory, we've had a focus on managing our inventory exposure and we're doing a good job of keeping our inventories to a minimum now we do have tanked.
Greg L. Mills: The crude oil inventory, we've had a focus on managing our inventory exposure, and we're doing a good job of keeping our inventories to a minimum. Now, we do have tank bottoms and line fills that we are going to have at all times, but in terms of just carrying inventory for the sake of inventory, we try not to do that, and we're effectively marketing everything we buy. So we're trying to just keep that, you know, keep it out of the numbers and keep it relatively flat.
Greg L. Mills: Tank bottoms in line feels that we are going to have at all times, but in terms of just carrying inventory for the sake of inventory, we try not to do that and we're effectively marketing everything we buy so we're trying to just keep that.
Greg L. Mills: Keep it out of the numbers.
Greg L. Mills: Keep it relatively flat.
Kevin J. Roycraft: Yeah, and Chris, I'll say it's a working inventory, so usually the fluctuations you see for us, as Greg is really focused on keeping the inventory as low as possible, are the timing of barges that may hit towards the end of the month, and that could have some relatively significant swings if a barge either leaves late in the month or it gets pushed into the next month. So I think you will see swings in that.
Speaker Change: Yes, Chris I'll say, it's a working inventories so usually the fluctuations you see for US is Greg is really focused on keeping the inventory as low as possible is is the timing of barges that may hit towards the end of the month and that can have some some relatively significant swings of our barge either leaves late in the month or it gets pushed into the next month. So I think you'll see some inkling.
Greg L. Mills: That's correct. And so if you see a higher inventory number in the first quarter this year, we did have some carryovers. So not inventory that we're necessarily sitting on, but inventory that's already pre-sold, but it still counts in our numbers.
Speaker Change: That's correct and so if you see a higher inventory number in the first quarter.
Greg L. Mills: The first quarter of this year, we did have some carryover so not not inventory that we're necessarily sitting on inventory.
Greg L. Mills: Inventory, that's already pre sold but it still counts in our numbers right. We show it as inventory we own because it hasn't left our facility, but in multiple instances when that happens at that late in the quarter like that or latent in any given month, but in the quarters, where you see it it probably has already pre priced so we don't.
Kevin J. Roycraft: We show it as inventory we own because it hasn't left our facility, but in multiple instances when that happens late in the quarter like that, or late in any given month, but the quarters where you see it, it probably is already pre-priced, so we don't have price exposure risk if something were to happen in the future months.
Kevin J. Roycraft: Have price exposure risk if something were to happen in the future months, that's exactly right and that number was probably close to 100000 barrels at the end of the first quarter.
Greg L. Mills: That's exactly right, and that number was probably close to 100,000 barrels at the end of the first quarter.
Joichi Sakai: Okay, thanks. That's good to know. Can you talk about your capital expenditures for the remaining of the year? Do you have a target number for the year?
Speaker Change: Okay. Thanks, that's good to know.
Speaker Change: Can you talk about.
Joichi Sakai: Capital expenditures for the remaining of the year do you have a target number for the year.
Kevin J. Roycraft: Yeah, a lot of the capital spending that you saw here in the first quarter was, I'll call it, a carryover from orders placed both in 2022 and 2023. So, going forward, on both the logistics and repurposing segment and the marketing segment, the crude oil side of the business, it'll be very minimal, other than the expenditures related to the Dayton facility, which is more of a growth or new revenue type capital, but just from the replacement of tractors and trailers.
Speaker Change: Yes, yes.
Speaker Change: Lot of the capital spending that you saw here in the first quarter was I'll call. It a carryover from orders placed both in 2022 and 2023 so.
Kevin J. Roycraft: Boeing forward on both the logistics and Repurposing segment, and the marketing segment, the crude oil side of the business. It will be very minimal other than the expenditures related to the Dayton facility.
Kevin J. Roycraft: Which is more of a growth.
Kevin J. Roycraft: New revenue type capital, but just from replacement of tractors and trailers with the shutdown of the Red River business, we took that equipment redeployed it both among or between the.
Kevin J. Roycraft: With the shutdown of the Red River business, we took that equipment, and redeployed it either between Firebird and Gulfmark, so we'll have very little capital spending on the crude side of the business. And then we've got orders for tractors and trailers scheduled for delivery, really kind of starting in early Q3 and going into Q4 on the service transportation side, but it's not a substantial amount of capital. And I'll say, too, that the lead times for equipment have really been shortened.
Kevin J. Roycraft: Firebird and Gulf Mark So we will have very little capital spending on the crude side of the business and then we've got orders for tractors and trailers scheduled for delivery really kind of starting or early Q3 and going into Q4 on the surface transportation side, but it's not a substantial amount of capital and I'll say.
Kevin J. Roycraft: To the lead times for equipment has really been shortened.
Kevin J. Roycraft: Last year, we were looking at trailer lead times in excess of a year. They're down to around three months now, so generally, if we order by the summer, we'll receive capital expenditure by the end of the year. It shouldn't limit how much carryover from one year to the next we have, which has not been the case over the last couple of years, but it is also that kind of an indicator of where the market is today.
Kevin J. Roycraft: Last year, we were looking at trailer lead times in excess of year. They are down to around three months now so.
Kevin J. Roycraft: Generally if we order by the summer will recede capex by the end of the year should limit how much carryover from one year. The next we have which has not been the case over the last couple of years, but also that kind of as an indicator of where the market is today absolutely.
Joichi Sakai: Okay, thanks for the answers. Thank you, Chris. I appreciate it.
Speaker Change: Okay. Thanks for the answers.
Speaker Change: Thank you Chris I appreciate it.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Kevin Roycraft for any closing remarks.
Speaker Change: This concludes our question and answer session.
Kevin J. Roycraft: I would like to turn the conference back over to Kevin Roy craft for any closing remarks.
Kevin J. Roycraft: Thank you, Debbie, and thank you all for your continued interest in Adams. We look forward to providing you with an update on our progress when we report our second quarter earnings in August. Thank you for joining us on the call.
Kevin J. Roycraft: Thank you Debbie and thank you all for your continued interest in Adams, we look forward to providing you an update on our progress when we.
Kevin J. Roycraft: We report our second quarter earnings in August Thank you for joining the call.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.