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ADAMS RESOURCES & ENERGY, INC. (AE)·Q4 2023 Earnings Summary

Executive Summary

  • Mixed quarter: revenue declined 5% year over year to $709.8M, but losses narrowed materially; Q4 diluted EPS was ($0.34) vs ($2.34) in Q4’22, and adjusted net earnings were ~$0.03 per share as cost controls and non-GAAP adjustments offset volume/macro headwinds .
  • Cash/liquidity strengthened: operating cash flow rose to $22.4M in Q4 (vs. $(2.1)M in Q4’22), cash ended at $33.3M and total liquidity at $80.3M; sequential gains aided by inventory and working capital movements and disciplined capital spending .
  • Segment dynamics: crude marketing margins improved sequentially despite lower volumes; Red River exit added ~$2.6M gains and incurred nearly $1M one-time costs; logistics/repurposing posted a Q4 loss; pipeline volumes improved sequentially but remain below plan pending third‑party shipper repairs .
  • Outlook/tone: management expects macro headwinds to persist into 1H24 with gradual recovery later; 2024 capex expected lower given asset redeployment; dividend maintained at $0.24/share, continuing a 25+ year record .
  • Estimates context: S&P Global consensus for AE’s Q4’23 EPS/revenue was not available via our feed; therefore beat/miss vs. estimates cannot be determined at this time (S&P Global consensus unavailable).

What Went Well and What Went Wrong

  • What Went Well

    • Crude marketing margin resilience with sequential operating income improvement; CEO: “Adjusted cash flow…improved 44% over the third quarter…not included were nearly $1 million of one-time expenses and $2.6 million in gains…associated with the closure of our Red River operations” .
    • Strengthened balance sheet and liquidity: cash to $33.3M (+62% YoY; +104% QoQ) and liquidity to $80.3M (+44% QoQ) by year-end .
    • Safety/operations: Service Transport earned National Tank Truck Association safety recognition; favorable insurance premium adjustments lifted Q4 Transportation results .

  • What Went Wrong

    • Volumes under pressure: GulfMark marketed 73,381 bpd in Q4 (vs. 92,556 bpd in Q3 and 99,441 bpd in Q4’22) following Red River exit, though margins improved to partially offset .
    • VEX pipeline below expectations: throughput rose to 9,377 bpd (+10% QoQ) but remains below internal targets pending repairs by third‑party shipper; no start-up timeline given .
    • Logistics & Repurposing reported a $1.1M loss in Q4; Phoenix remains largely spot market dependent until term contracts/Dayton project support more consistent profitability .

Financial Results

Sequential trend (Q2 → Q3 → Q4 2023)

MetricQ2 2023Q3 2023Q4 2023
Revenue ($USD Millions)$624.8 $760.6 $709.8
Operating Income ($M)$1.8 $3.9 ($0.7)
Net Income ($M)$0.8 $2.3 ($0.9)
Diluted EPS ($)$0.32 $0.88 ($0.34)
Operating Margin %0.3% (calc from )0.5% (calc from )(0.1%) (calc from )
Net Margin %0.1% (calc from )0.3% (calc from )(0.1%) (calc from )

Year-over-year

MetricQ4 2022Q4 2023
Revenue ($USD Millions)$747.7 $709.8
Net Income ($M)($7.3) ($0.9)
Diluted EPS ($)($2.34) ($0.34)

Segment revenue mix (sequential)

Segment Revenue ($M)Q2 2023Q3 2023Q4 2023
Marketing$585.3 $719.9 $671.7
Transportation$24.5 $24.2 $23.3
Pipeline & Storage$0.25 $0.06 $0.02
Logistics & Repurposing$14.8 $16.4 $14.8
Total Revenues$624.8 $760.6 $709.8

Key KPIs and balance sheet/cash metrics

KPIQ2 2023Q3 2023Q4 2023
GulfMark marketed bpd92,152 92,556 73,381
Service Transport miles (MM)6.30 6.51 6.13
VEX throughput (bpd)8,560 8,548 9,377
VEX terminalling (bpd)10,785 9,350 9,589
Crude inventory (barrels)369,738 307,175 267,731
Cash & cash equivalents ($M)$9.0 $16.3 $33.3
Liquidity ($M)$48.6 $55.9 $80.3
Adjusted Cash Flow ($M, non‑GAAP)$7.06 $4.75 $6.84

Non-GAAP snapshot (Q4 2023)

  • Adjusted net earnings of ~$0.1M ($0.03/share) vs adjusted net loss of $(2.7)M in Q4’22; adjustments include inventory valuation, gains on sales, stock comp, and related tax effects .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per shareQ4 2023$0.24 (Q3) $0.24 (declared Feb 21, 2024) Maintained
GulfMark bpdQ1 2024n/a“Relatively flat to Q4” Commentary only
Service Transport milesQ1 2024n/aMix shifting to shorter hauls; miles may decline but results not necessarily impacted Commentary only
VEX third‑party barrels2024n/aStill expected; timing uncertain (third‑party repairs ongoing) Commentary only
2024 CapexFY 2024n/aLower vs prior run-rate due to redeploying late-model tractors from Red River; ST to remain similar; normalization in 2025 Lower (directional)

Note: No quantified revenue/margin/OpEx/tax-rate guidance provided; commentary focuses on cost control, margin management, and timing of macro recovery .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2’23 and Q3’23)Current Period (Q4’23)Trend
Macro/chemicals demandQ2: headwinds at low point; gradual recovery expected into 2024 . Q3: headwinds to persist with gradual recovery late 1H24 .Headwinds to continue into 1H24; seeing some early signs (overflow loads), not yet a turn .Stabilizing with cautious optimism 2H24
VEX pipeline third‑party shipperQ2: connection under way; volumes down YoY . Q3: throughput ~8.5 kbpd; still below expectations .Throughput +10% QoQ to 9.4 kbpd but below plan; third‑party repairs ongoing; no timeline .Slow progress; dependency risk persists
Crude marketing margins/rig countQ2: sequential operating income improvement . Q3: sequential marketing operating income increase .Margins solid; team offset barrel losses; Eagle Ford rigs down ~28% YoY pressuring volumes .Margin management offsets volume pressure
Logistics/Repurposing (Firebird/Phoenix)Q2: positive cash flow . Q3: positive cash flow .>$4M positive FY cash flow; rate increases at Firebird; Phoenix targeting term contracts; Dayton project to break ground 1H24 .Integration benefits growing; project-driven upside
Safety/insuranceNot highlighted.Safety credits aided Q4; NTTC safety recognition .Improving safety economics
Capital returnsQ2: $0.24 dividend . Q3: $0.24 dividend .$0.24 dividend maintained .Steady dividend

Management Commentary

  • “Adjusted cash flow…improved 44% over the third quarter of 2023 from $4.8 million to $6.8 million…Not included…nearly $1 million of one‑time expenses and $2.6 million in gains…associated with the closure of our Red River operations” — Kevin J. Roycraft, CEO .
  • “VEX is still behind our volume expectations…third‑party shipper…continues to find and repair issues on their pipeline system…reluctant to put a timeline on start‑up” — CEO .
  • “Our over‑the‑road [Service Transport] saw improved cash flow and earnings…largely driven by favorable insurance premium adjustments related to better‑than‑expected safety performance” — CEO .
  • “Operating income for the [Marketing] segment was $4.1 million…Transportation…$1.6 million…Logistics and Repurposing…loss of $1.1 million” — CFO .
  • “We believe the company can see improved results over 2023 even if the current market challenges persist…if market conditions improve…we could see significant year‑over‑year improvement” — CEO .

Q&A Highlights

  • Red River exit accounting: ~$1.0M one-time expenses and ~$2.6M asset sale gains both flowed through Marketing costs/expenses; net ~+$1.6M benefit in that line for Q4 .
  • Marketing margins: remained strong independent of Red River; margin resilience driven by cost cutting and negotiations despite lower rigs/volumes .
  • Firebird/Phoenix path forward: driver count growth (Firebird ~115–116), rate increases underway, Phoenix seeking term contracts; Dayton rail/lab project to improve efficiency and product scope .
  • VEX connection/capex: third‑party still repairing system; management does not expect another large pipeline connection capex in 2024; potential partner capital for any new connection .
  • Near‑term volumes/miles: GulfMark barrels roughly flat in Q1’24 vs Q4; Service Transport shifting to shorter hauls (lower miles but manageable economics) .

Estimates Context

  • Wall Street consensus (S&P Global) for AE Q4’23 EPS and revenue was unavailable via our SPGI interface for this issuer at the time of analysis. As a result, we cannot quantify a beat/miss vs. consensus for Q4’23 (S&P Global consensus unavailable).

Key Takeaways for Investors

  • Liquidity and cash strengthened into year‑end (cash $33.3M; liquidity $80.3M), providing cushion to manage a slow macro recovery and fund selective initiatives .
  • Core crude marketing demonstrated margin control despite volume declines (73.4 kbpd Q4 vs 92.6 kbpd Q3), with Red River exit executed cleanly and cost benefits ahead from asset redeployment .
  • VEX pipeline remains a call option on third‑party barrels; any connection start‑up would be a positive catalyst, but timing remains uncertain (no guidance) .
  • Transportation (Service Transport) is positioned for leverage to chemical demand normalization; safety performance/credits and mix shift to shorter hauls help defend earnings in the interim .
  • Logistics/Repurposing integration is progressing (>$4M FY cash flow); 2024 catalysts include Firebird rate resets and Phoenix’s Dayton project ground‑breaking in 1H24 .
  • 2024 capex expected lower due to tractor redeployment from Red River; should support free cash flow and deleveraging priorities .
  • Dividend continuity at $0.24/share signals commitment to returns while maintaining balance sheet flexibility for recovery .