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ADAMS RESOURCES & ENERGY, INC. (AE)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 results: revenue $718.5M, net loss ($2.2M) or ($0.87) per share; EBITDA $3.7M and Adjusted EBITDA $4.2M (ex-inventory valuation losses) . Management also noted an adjusted view of ~$5.0M EBITDA when further excluding an incremental $0.8M self-insured retention (SIR) expense tied to a trucking incident .
  • Mix and drivers: Crude marketing (GulfMark) was the bright spot (~80% of Q2 EBITDA), with stronger margins and sequential volume lift; VEX pipeline throughput rose 23% q/q to 13,881 bpd as GulfMark routed more barrels and terminalling activity increased .
  • Headwinds: Specialty chemical transport remained weak with rate pressure; Phoenix Oil’s product acceptance issue persisted (mitigation via barge deliveries to begin mid-Q3); Firebird volumes flat with added SIR expense; overall freight demand and Eagle Ford rigs remain soft .
  • Balance sheet and capital returns: Unrestricted cash rose to $38.5M and liquidity to $88.5M; $3M of term loan principal repaid; quarterly dividend maintained at $0.24 per share .

What Went Well and What Went Wrong

  • What Went Well

    • GulfMark delivered significantly better margins and volumes q/q; management: “approximately 80% of the company’s EBITDA for the quarter came from GulfMark’s performance” .
    • VEX pipeline throughput increased to 13,881 bpd (from 11,256 bpd in Q1), and terminalling volumes rose to 16,660 bpd; sequential +23% throughput with improved terminalling activity .
    • Liquidity/cash improved for the fourth straight quarter; unrestricted cash $38.5M; liquidity $88.5M; $3M accelerated principal repayment on the KSA repurchase term loan (ending balance ~$15.6M) .

  • What Went Wrong

    • Freight recession continues to weigh on chemical transport rates; STC saw more short-haul mix and customer RFP-driven rate cuts; profitability requires rate normalization toward 2022 levels .
    • Logistics & Repurposing (Firebird + Phoenix) posted a $2.9M operating loss (vs. $0.1M loss LY) with Firebird impacted by $0.8M SIR expense and Phoenix volumes down on product acceptance issues .
    • Pipeline & Storage widened its operating loss to $1.1M on lower third-party revenues and higher personnel/outside service costs; third-party terminalling expected to be lower near-term .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Millions)$624.8 $661.1 $718.5
Net Income (Loss) ($USD Millions)$0.827 ($0.498) ($2.229)
Diluted EPS ($)$0.32 ($0.19) ($0.87)
EBITDA ($USD Millions)$9.083 $5.994 $3.745
Adjusted EBITDA ($USD Millions)$10.034 ~$4.2 (ex Q1 inventory liquidation gains) $4.201 (ex Q2 inventory valuation losses)

Segment performance

SegmentQ2 2023Q2 2024
Marketing Revenue ($M)$585.3 $682.8
Marketing Operating Income ($M)$3.4 $5.6
Transportation Revenue ($M)$24.5 $22.8
Transportation Operating Income ($M)$1.1 $0.637
Pipeline & Storage Revenue ($M)Minimal (after intersegment offset) Minimal (after intersegment offset)
Pipeline & Storage Operating Income (Loss) ($M)($0.779) ($1.1)
Logistics & Repurposing Revenue ($M)$14.8 $12.9
Logistics & Repurposing Operating Income (Loss) ($M)($0.133) ($2.9)

Key operating and balance sheet metrics

KPIQ4 2023Q1 2024Q2 2024
GulfMark marketed crude (bpd)73,381 64,634 67,099
VEX throughput (bpd)9,377 11,256 13,881
VEX terminalling (bpd)9,589 11,544 16,660
STC miles (million)6.13 6.29 6.32
Crude oil inventory (barrels)267,731 329,287 244,871
Cash & Equivalents ($M)$33.3 $36.6 $38.5
Liquidity ($M)$80.3 $83.6 $88.5

Notes:

  • Q2 2024 inventory valuation loss was $0.456M; Adjusted EBITDA excludes this item per company definition .
  • Management highlighted a further $0.8M SIR expense in Q2; excluding both inventory valuation and SIR, EBITDA would be ~$5.0M (management’s adjusted view) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per share (quarterly)Q2 2024$0.24 (Q1 2024) $0.24; payable 9/27/24; record 9/13/24 Maintained
Phoenix Oil delivery modeMid-Q3 2024Primarily truck deliveries Add barge deliveries; tankage leased on Houston Ship Channel Expanded capability
Phoenix Dayton rail spurQ4 2024Target operational late 2024 “Aim… up and running in the fourth quarter” Timeline reaffirmed
Hurricane Beryl impactQ3 2024N/ANo material impact expected on Q3 results No material impact
GulfMark marginsQ3 2024Expected to hold into Q2 Expect strong margins to continue in Q3 Maintained positive outlook

The company does not provide formal numerical revenue/EPS guidance; commentary remains qualitative .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
Chemical transport demand/rates (STC)Freight recession; RFP-driven rate cuts; watching overflow lanes; pockets of tightening emerging Early Q3 rate increases in pockets; more short-haul mix; recovery likely late 2024/early 2025 Gradual improvement building
VEX pipeline volumes and 3rd-party barrelsVolumes improving but below expectations; 3rd-party shipper timeline uncertain Throughput +23% q/q to 13,881 bpd; 3rd-party terminalling to drop near term; steady internal volumes Internal volumes up; external mixed
GulfMark marketing margins/volumesMargin work offsetting rig softness; Q1 volumes steady to up; margins maintained Significant q/q improvement; ~80% of Q2 EBITDA; expect strong margins into Q3 Positive momentum
Phoenix Oil (repurposing)Temporary slowdown; plan to shift to barge; Dayton rail spur targeted late ’24 Barge deliveries mid-Q3; Dayton rail spur targeted Q4’24 to cut costs and improve efficiency Execution steps underway
Eagle Ford/rig activity & FirebirdRig count declines weighing on volumes; driving rate increases at Firebird Firebird flat/slightly lower volumes expected; SIR cost hit Q2; focus on efficiency Soft near-term
Insurance/SIR & safetySafety efforts produced premium credits; rolling out cameras to reduce risk $0.8M SIR expense impacted Q2; continued cost control focus Near-term headwind; mitigations continue

Management Commentary

  • “While I’m encouraged by our sequential quarter-over-quarter improvement, there is still work to do as our results are not meeting the company’s current potential.”
  • “Approximately 80% of the company’s EBITDA for the quarter came from GulfMark’s performance.”
  • “Throughput [VEX] reached 13,881 barrels per day in Q2… driven by GulfMark routing volumes through the VEX system and… third-party… terminalling services.”
  • “We do not expect a material impact on Q3 results from the effects of Hurricane Beryl.”
  • “We expect strong margins for GulfMark to continue into the third quarter.”
  • “Phoenix will be offering product delivery by barge… expected to open up new markets and improve… margins.”
  • “We aim to have the rail spur… up and running in the fourth quarter… [to] eliminate… trucking cost and the rail lease expense.”

Q&A Highlights

  • Chemical transport recovery indicators: Carrier turndowns rising and trucking exits are tightening capacity; STC achieving targeted rate increases for first time in ~2 years, though full recovery will take time .
  • VEX outlook: Volumes likely steady, not quite as high as 2Q, with some producer flowback tailwind fading; third-party terminalling at Victoria expected to “drop off a bit” near term .
  • Macro cadence: Management sees signs the freight market is awakening; several analysts predict recovery possibly by fall 2024 or early 2025; early Q3 returns supportive .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2024 EPS/Revenue/EBITDA was unavailable for AE at the time of this analysis due to missing SPGI mapping; therefore, we cannot determine beat/miss versus consensus for this quarter. Values from S&P Global were not retrievable for AE.
  • Given the absence of published consensus, investor focus should be on sequential profitability inflection on management’s adjusted basis ($5.0M adjusted EBITDA ex-inventory and SIR vs ~$4.2M in Q1) and durability of GulfMark margins into Q3 .

Key Takeaways for Investors

  • Crude marketing strength is carrying the quarter; sequential improvement (on management’s adjusted view) and VEX throughput growth suggest resilient cash generation even with weak freight markets .
  • Chemical transport is showing early green shoots (capacity tightening, pocket rate increases), but meaningful recovery is more likely late 2024/early 2025; near-term operating leverage depends on sustaining rate progress .
  • Logistics & Repurposing is a drag near term; Phoenix’s mid-Q3 barge start and Q4 Dayton rail spur are tangible catalysts to improve mix and margins in 2H24/2025 .
  • Balance sheet remains a support: rising cash and liquidity, steady dividend, and ongoing term loan paydown (to ~$15.6M) position AE to ride out cyclical headwinds .
  • Watch near-term catalysts: confirmation of strong Q3 GulfMark margins, VEX third-party activity, realized STC rate increases, and execution milestones at Phoenix/Dayton .
  • Risk factors: continued freight softness, Eagle Ford rig declines pressuring Firebird volumes, insurance/SIR variability, and potential variability in third-party pipeline throughput .

Appendix: Additional Details

Other Q2-related press releases

  • AE announced timing of Q2 release (July 29) and investor conference participation (June 5; Aug 21); these did not add financial guidance .

Non-GAAP adjustments and reconciliations

  • Company-defined Adjusted EBITDA excludes inventory valuation/liquidation items; Q2 2024 EBITDA $3.745M and Adjusted EBITDA $4.201M; Q2 included a $0.456M inventory valuation loss .
  • Management also cited an additional $0.8M SIR expense impacting Q2; excluding this and inventory effects, EBITDA would be ~$5.0M (management’s adjusted view) .