ADAMS RESOURCES & ENERGY, INC. [AE] Filings

10-Q 1 ae-20230331.htm 10-Q ae-20230331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___.

Commission file number: 1-07908

ADAMS RESOURCES & ENERGY, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware						74-1753147
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)


17 South Briar Hollow Lane, Suite 100 Houston, Texas 77027
(Address of Principal Executive Offices, including Zip Code)

(713) 881-3600

(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.10 Par Value

NYSE American LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☑

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

A total of 2,534,685 shares of Common Stock were outstanding at May 1, 2023.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

TABLE OF CONTENTS


		Page Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets	2
	Unaudited Condensed Consolidated Statements of Operations	3
	Unaudited Condensed Consolidated Statements of Cash Flows	4
	Unaudited Condensed Consolidated Statements of Shareholders’ Equity	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40

Signatures		41

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	March 31,		December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	42,135	$	20,532
Restricted cash	8,847		10,535
Accounts receivable, net of allowance for doubtful
accounts of $85 and $88, respectively	158,126		189,039

Inventory	22,275		26,919
Derivative assets	157		—

Prepayments and other current assets	3,028		3,118
Total current assets	234,568		250,143
Property and equipment, net	110,264		106,425
Operating lease right-of-use assets, net	7,414		7,720
Intangible assets, net	9,294		9,745
Goodwill	6,428		6,428
Other assets	3,595		3,698
Total assets	$	371,563	$	384,159

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	191,704	$	204,391
Accounts payable – related party	—		31
Derivative liabilities	—		330
Current portion of finance lease obligations	5,221		4,382
Current portion of operating lease liabilities	2,821		2,712
Current portion of long-term debt	2,500		—
Other current liabilities	16,627		19,214
Total current liabilities	218,873		231,060
Other long-term liabilities:
Long-term debt	21,250		24,375
Asset retirement obligations	2,434		2,459
Finance lease obligations	18,677		12,085
Operating lease liabilities	4,595		5,007
Deferred taxes and other liabilities	14,579		15,996
Total liabilities	280,408		290,982

Commitments and contingencies (Note 16)

Shareholders’ equity:
Preferred stock – $1.00 par value, 960,000 shares
authorized, none outstanding	—		—
Common stock – $0.10 par value, 7,500,000 shares
authorized, 2,534,685 and 2,495,484 shares outstanding, respectively	252		248
Contributed capital	20,571		19,965
Retained earnings	70,332		72,964
Total shareholders’ equity	91,155		93,177
Total liabilities and shareholders’ equity	$	371,563	$	384,159

See Notes to Unaudited Condensed Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	Three Months Ended
	March 31,
	2023		2022
Revenues:
Marketing	$	608,476	$	747,555
Transportation	26,445		26,690
Pipeline and storage	—		—
Logistics and repurposing	15,241		—
Total revenues	650,162		774,245

Costs and expenses:
Marketing	604,494		735,647
Transportation	22,413		20,865
Pipeline and storage	938		554
Logistics and repurposing	13,125		—
General and administrative	4,772		4,018
Depreciation and amortization	7,050		5,013
Total costs and expenses	652,792		766,097

Operating (losses) earnings	(2,630)		8,148

Other income (expense):
Interest and other income	204		24
Interest expense	(696)		(114)
Total other (expense) income, net	(492)		(90)

(Losses) Earnings before income taxes	(3,122)		8,058
Income tax benefit (provision)	1,123		(1,968)

Net (losses) earnings	$	(1,999)	$	6,090

(Losses) Earnings per share:
Basic net (losses) earnings per common share	$	(0.79)	$	1.40
Diluted net (losses) earnings per common share	$	(0.79)	$	1.39


Dividends per common share	$	0.24	$	0.24

See Notes to Unaudited Condensed Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Three Months Ended
	March 31,
	2023		2022
Operating activities:
Net (losses) earnings	$	(1,999)	$	6,090
Adjustments to reconcile net (losses) earnings to net cash
provided by operating activities:
Depreciation and amortization	7,050		5,013
Gains on sales of property	(31)		(491)
Provision for doubtful accounts	(3)		(5)
Stock-based compensation expense	283		195
Deferred income taxes	(1,424)		561
Net change in fair value contracts	(487)		(20)
Changes in assets and liabilities:
Accounts receivable	30,916		(74,660)
Accounts receivable/payable, affiliates	(31)		48
Inventories	4,644		(23,440)
Income tax receivable	—		1,284
Prepayments and other current assets	90		684
Accounts payable	(12,653)		91,211
Accrued liabilities	(2,514)		(775)
Other	(134)		178
Net cash provided by operating activities	23,707		5,873

Investing activities:
Property and equipment additions	(1,900)		(3,694)

Proceeds from property sales	441		856

Net cash used in investing activities	(1,459)		(2,838)

Financing activities:
Borrowings under Credit Agreement	18,000		—
Repayments under Credit Agreement	(18,625)		—
Principal repayments of finance lease obligations	(1,576)		(1,139)

Net proceeds from sale of equity	549		—
Dividends paid on common stock	(681)		(1,068)
Net cash used in financing activities	(2,333)		(2,207)

Increase in cash and cash equivalents, including restricted cash	19,915		828
Cash and cash equivalents, including restricted cash, at beginning of period	31,067		107,317
Cash and cash equivalents, including restricted cash, at end of period	$	50,982	$	108,145

See Notes to Unaudited Condensed Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except per share data)


							Total
	Common		Contributed		Retained		Shareholders’
	Stock		Capital		Earnings		Equity

Balance, January 1, 2023	$	248	$	19,965	$	72,964	$	93,177
Net losses	—		—		(1,999)		(1,999)
Stock-based compensation expense	—		283		—		283
Vesting of restricted awards	3		(3)		—		—
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards	—		(222)		—		(222)
Shares sold under at-the-market
offering program	1		548		—		549
Dividends declared:
Common stock, $0.24/share	—		—		(608)		(608)
Awards under LTIP, $0.24/share	—		—		(25)		(25)
Balance, March 31, 2023	$	252	$	20,571	$	70,332	$	91,155


							Total
	Common		Contributed		Retained		Shareholders’
	Stock		Capital		Earnings		Equity

Balance, January 1, 2022	$	433	$	16,913	$	143,040	$	160,386
Net earnings	—		—		6,090		6,090
Stock-based compensation expense	—		195		—		195
Vesting of restricted awards	2		(2)		—		—
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards	—		(86)		—		(86)
Dividends declared:
Common stock, $0.24/share	—		—		(1,048)		(1,048)
Awards under LTIP, $0.24/share	—		—		(16)		(16)
Balance, March 31, 2022	$	435	$	17,020	$	148,066	$	165,521

See Notes to Unaudited Condensed Consolidated Financial Statements.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

Adams Resources & Energy, Inc. is a publicly traded Delaware corporation organized in 1973, the common shares of which are listed on the NYSE American LLC under the ticker symbol “AE”. Through our subsidiaries, we are primarily engaged in crude oil marketing, truck and pipeline transportation of crude oil, terminalling and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). In addition, we conduct tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with twenty terminals across the U.S. We also recycle and repurpose off-specification fuels, lubricants, crude oil and other chemicals from producers in the U.S. Unless the context requires otherwise, references to “we,” “us,” “our,” “Adams” or the “Company” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.

We operate and report in four business segments: (i) crude oil marketing, transportation and storage; (ii) tank truck transportation of liquid chemicals, pressurized gases, asphalt and dry bulk; (iii) pipeline transportation, terminalling and storage of crude oil; and (iv) interstate bulk transportation logistics of crude oil, condensate, fuels, oils and other petroleum products and recycling and repurposing of off-specification fuels, lubricants, crude oil and other chemicals. See Note 8 for further information regarding our business segments.

Basis of Presentation

Our results of operations for the three months ended March 31, 2023 are not necessarily indicative of results expected for the full year of 2023. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals necessary for fair presentation. The condensed consolidated financial statements and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and the rules of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) filed with the SEC on March 16, 2023. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of our financial statements in conformity with GAAP requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and on various other assumptions and information we believe to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. While we believe the estimates and assumptions used in the preparation of these condensed consolidated financial statements are appropriate, actual results could differ from those estimates.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Summary of Significant Accounting Policies

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported in the unaudited condensed consolidated balance sheets that totals to the amounts shown in the unaudited condensed consolidated statements of cash flows at the dates indicated (in thousands):


	March 31,		December 31,
	2023		2022

Cash and cash equivalents	$	42,135	$	20,532
Restricted cash:
Collateral for outstanding letters of credit (1)	357		892
Captive insurance subsidiary (2)	8,490		9,643
Total cash, cash equivalents and restricted cash shown in the
unaudited condensed consolidated statements of cash flows	$	50,982	$	31,067

_____________

(1)Represents amounts that are held in a segregated bank account by Wells Fargo Bank as collateral for an outstanding letter of credit.

(2)$1.5 million of the restricted cash balance relates to the initial capitalization of our captive insurance company formed in late 2020, and the remainder represents amounts paid to our captive insurance company for insurance premiums.

Common Shares Outstanding

The following table reconciles our outstanding common stock for the periods indicated:


						Common
						shares

Balance, January 1, 2023						2,495,484
Vesting of restricted stock unit awards (see Note 13)						20,291
Vesting of performance share unit awards (see Note 13)						12,319
Shares withheld to cover taxes upon vesting of equity awards						(8,089)
Shares sold under at-the-market offering program						14,680
Balance, March 31, 2023						2,534,685

Earnings Per Share

Basic earnings (losses) per share is computed by dividing our net earnings (losses) by the weighted average number of common shares outstanding during the period. Diluted earnings (losses) per share is computed by giving effect to all potential common shares outstanding, including shares related to unvested restricted stock unit awards. Unvested restricted stock unit awards granted under the Adams Resources & Energy, Inc. 2018 Long-Term Incentive Plan, as amended and restated (“2018 LTIP”), or granted as employment inducement awards outside of the 2018 LTIP, are not considered to be participating securities as the holders of these shares do not have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares (see Note 13 for further discussion).

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The calculation of basic and diluted (losses) earnings per share was as follows for the periods indicated (in thousands, except per share data):


	Three Months Ended
	March 31,
	2023		2022
(Losses) Earnings per share — numerator:
Net (losses) earnings	$	(1,999)	$	6,090

Denominator:
Basic weighted average number of shares outstanding	2,517		4,359

Basic (losses) earnings per share	$	(0.79)	$	1.40

Diluted (losses) earnings per share:
Diluted weighted average number of shares outstanding:
Common shares	2,517		4,359
Restricted stock unit awards (1)	—		24
Performance share unit awards (1) (2)	—		11
Total diluted shares	2,517		4,394

Diluted (losses) earnings per share	$	(0.79)	$	1.39

_______________

(1)For the three months ended March 31, 2023, the effect of the restricted stock unit awards and the performance share unit awards on losses per share was anti-dilutive.

(2)The dilutive effect of performance share awards are included in the calculation of diluted earnings per share when the performance share award performance conditions have been achieved.

Equity At-The-Market Offerings

During the three months ended March 31, 2023, we received net proceeds of approximately $0.6 million (net of offering costs to B. Riley Securities, Inc. of $27 thousand) from the sale of 14,680 of our common shares at an average price per share of approximately $40.74 in at-the-market offerings under our At Market Issuance Sales Agreement with B. Riley Securities, Inc. dated December 23, 2020.

Fair Value Measurements

The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities are recorded at fair value based on market quotations from actively traded liquid markets. The fair value of the term loan under our credit agreement (see Note 11 for further information) is representative of the carrying value based upon the variable terms and management’s opinion that the current rates available to us with the same maturity and security structure are equivalent to that of the debt.

A three-tier hierarchy has been established that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate these fair values. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and we elect, cash flow hedge accounting. We had no contracts designated for hedge accounting during any current reporting periods (see Note 12 for further information).

Income Taxes

Income taxes are accounted for using the asset and liability method. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of these items and their respective tax basis.

Inventory

Inventory consists of crude oil held in storage tanks and at third-party pipelines as part of our crude oil marketing and pipeline and storage operations. Crude oil inventory is carried at the lower of cost or net realizable value. At the end of each reporting period, we assess the carrying value of our inventory and make adjustments necessary to reduce the carrying value to the applicable net realizable value. Any resulting adjustments are a component of marketing costs and expenses or pipeline and storage expenses on our consolidated statements of operations.

Property and Equipment

Property and equipment is recorded at cost. Expenditures for additions, improvements and other enhancements to property and equipment are capitalized, and minor replacements, maintenance and repairs that do not extend asset life or add value are charged to expense as incurred. When property and equipment assets are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in results of operations in operating costs and expenses for the respective period. Property and equipment, except for land, is depreciated using the straight-line method over the estimated average useful lives ranging from two to thirty-nine years.

We review our long-lived assets for impairment whenever there is evidence that the carrying value of these assets may not be recoverable. Any impairment recognized is permanent and may not be restored. Property and equipment is reviewed at the lowest level of identifiable cash flows. For property and equipment requiring impairment, the fair value is estimated based on an internal discounted cash flow model of future cash flows.

See Note 5 for additional information regarding our property and equipment.

Stock-Based Compensation

We measure all share-based payment awards, including the issuance of restricted stock unit awards and performance share unit awards to employees and board members, using a fair-value based method. The cost of services received from employees and non-employee board members in exchange for awards of equity instruments is recognized in the consolidated statements of operations based on the estimated fair value of those awards on the grant date and is amortized on a straight-line basis over the requisite service period. The fair value of restricted stock unit awards and performance share unit awards is based on the closing price of our common stock on the grant date. We account for forfeitures as they occur. See Note 13 for additional information regarding our 2018 LTIP.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Revenue Recognition

Revenue Disaggregation

The following table disaggregates our revenue by segment and by major source for the periods indicated (in thousands):


	Three Months Ended
	March 31,
	2023		2022
Crude Oil Marketing:
Revenue from contracts with customers:
Goods transferred at a point in time	$	588,089	$	736,034
Services transferred over time	44		—
Total revenues from contracts with customers	588,133		736,034
Other (1)	20,343		11,521
Total crude oil marketing revenue	$	608,476	$	747,555

Transportation:
Revenue from contracts with customers:
Goods transferred at a point in time	$	—	$	—
Services transferred over time	26,445		26,690
Total revenues from contracts with customers	26,445		26,690
Other	—		—
Total transportation revenue	$	26,445	$	26,690

Pipeline and storage: (2)
Revenue from contracts with customers:
Goods transferred at a point in time	$	—	$	—
Services transferred over time	—		—
Total revenues from contracts with customers	—		—
Other	—		—
Total pipeline and storage revenue	$	—	$	—

Logistics and repurposing:
Revenue from contracts with customers:
Goods transferred at a point in time	$	8,154	$	—
Services transferred over time	7,087		—
Total revenues from contracts with customers	15,241		—
Other	—		—
Total logistics and repurposing revenue	$	15,241	$	—

Subtotal:
Total revenues from contracts with customers	$	629,819	$	762,724
Total other (1)	20,343		11,521
Total consolidated revenues	$	650,162	$	774,245

_______________

(1)Other crude oil marketing revenues are recognized under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, and ASC 845, Nonmonetary Transactions – Purchases and Sales of Inventory with the Same Counterparty.

(2)All pipeline and storage revenue during the three months ended March 31, 2023 and 2022 was from an affiliated shipper, GulfMark Energy, Inc., our subsidiary, and was eliminated in consolidation.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Other Crude Oil Marketing Revenue

Certain of the commodity purchase and sale contracts utilized by our crude oil marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activity. From the time of contract origination, these contracts are marked-to-market and recorded on a net revenue basis in the accompanying unaudited condensed consolidated financial statements.

Certain of our crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations. These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer. These buy/sell arrangements are reflected on a net revenue basis in the accompanying unaudited condensed consolidated financial statements.

Reporting these crude oil contracts on a gross revenue basis would increase our reported revenues as follows for the periods indicated (in thousands):


	Three Months Ended
	March 31,
	2023		2022

Revenue gross-up	$	286,702	$	307,386

Note 4. Prepayments and Other Current Assets

The components of prepayments and other current assets were as follows at the dates indicated (in thousands):


	March 31,		December 31,
	2023		2022

Insurance premiums	$	1,060	$	1,220

Rents, licenses and other	1,968		1,898
Total prepayments and other current assets	$	3,028	$	3,118

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Property and Equipment

The historical costs of our property and equipment and related accumulated depreciation and amortization balances were as follows at the dates indicated (in thousands):


	Estimated
	Useful Life	March 31,		December 31,
	in Years	2023		2022

Tractors and trailers	5 – 6	$	126,789	$	128,223
Field equipment	2 – 5	24,725		24,676
Finance lease ROU assets (1)	3 – 6	34,113		25,106
Pipeline and related facilities	20 – 25	20,362		20,362
Linefill and base gas (2)	N/A	3,922		3,922
Buildings	5 – 39	16,189		16,163
Office equipment	2 – 5	2,964		2,937
Land	N/A	2,309		2,309
Construction in progress	N/A	4,284		3,629
Total		235,657		227,327
Less accumulated depreciation and amortization		(125,393)		(120,902)
Property and equipment, net		$	110,264	$	106,425

_______________

(1)Our finance lease right-of-use (“ROU)” assets arise from leasing arrangements for the right to use various classes of underlying assets including tractors, trailers, a tank storage and throughput arrangement and office equipment (see Note 15 for further information). Accumulated amortization of the assets presented as “Finance lease ROU assets” was $11.6 million and $9.9 million at March 31, 2023 and December 31, 2022, respectively.

(2)Linefill and base gas represents crude oil in the VEX pipeline and storage tanks we own, and the crude oil is recorded at historical cost.

Components of depreciation and amortization expense were as follows for the periods indicated (in thousands):


	Three Months Ended
	March 31,
	2023		2022

Depreciation and amortization, excluding amounts under finance leases	$	4,824	$	3,613
Amortization of property and equipment under finance leases	1,775		1,208
Amortization of intangible assets	451		192
Total depreciation and amortization	$	7,050	$	5,013

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Acquisition

On August 12, 2022, we entered into a purchase agreement with each of Scott Bosard, Trey Bosard and Tyler Bosard (collectively, the “Sellers”) to acquire all of the equity interests of Firebird Bulk Carriers, Inc. (“Firebird”) and Phoenix Oil, Inc. (“Phoenix”) for approximately $39.3 million, consisting of a cash payment of $35.4 million, 45,777 of our common shares valued at $1.4 million, of which 15,259 shares were issued immediately and 30,518 shares will be issued over a three year period, and contingent consideration valued at approximately $2.6 million. We funded the cash consideration using cash on hand at the time of acquisition. Pursuant to the purchase agreement, the purchase price is subject to customary post-closing adjustment provisions, including an earn-out payable to the Sellers to the extent the earnings before interest, taxes, depreciation and amortization (EBITDA) of Phoenix exceeds a specified threshold during the twelve full calendar months after the closing date of the acquisition.

Firebird is an interstate bulk motor carrier of crude oil, condensate, fuels, oils and other petroleum products. Firebird is headquartered in Humble, Texas, with six terminal locations throughout Texas, and operates 130 tractors and 209 trailers largely in the Eagle Ford basin. Phoenix is also headquartered in Humble, Texas, and recycles and repurposes off-specification fuels, lubricants, crude oil and other chemicals from producers in the U.S. Firebird and Phoenix have formed our new logistics and repurposing segment. We expect that this acquisition will offer us the opportunity to expand our value chain and market impact, with numerous synergies benefiting the combined companies.

We accounted for the acquisition of Firebird and Phoenix under the acquisition method in accordance with ASC 805, Business Combinations. The allocation of purchase consideration was based upon the estimated fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition.

The purchase price allocation is subject to revision as acquisition-date fair value analyses are completed and if additional information about facts and circumstances that existed at the acquisition date becomes available. The purchase price consideration, as well as the estimated fair values of the assets acquired and liabilities assumed, will be finalized as soon as practicable, but no later than one year from the closing of the acquisition. No changes to the purchase price allocation occurred during the first quarter of 2023.

Unaudited Pro Forma Financial Information

The unaudited pro forma condensed consolidated results of operations in the table below are provided for illustrative purposes only and summarize the combined results of our operations and those of Firebird and Phoenix. For purposes of this pro forma presentation, the acquisition of Firebird and Phoenix is assumed to have occurred on January 1, 2022. The pro forma financial information for all periods presented also includes the estimated business combination accounting effects resulting from this acquisition, notably amortization expense from the acquired intangible assets and certain other integration related impacts. This unaudited pro forma financial information should not be relied upon as being indicative of the historical results that would have been obtained if the acquisition had actually occurred on January 1, 2022, nor of the results of operations that may be obtained in the future (in thousands).


	Three Months Ended
	March 31,
		2022

Revenues		$	792,984
Net earnings		9,725

Basic net earnings per common share		$	2.22
Diluted net earnings per common share		$	2.21

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Other Assets

Components of other assets were as follows at the dates indicated (in thousands):


	March 31,		December 31,
	2023		2022

Insurance collateral deposits	$	503	$	463
State collateral deposits	23		23
Materials and supplies	1,222		1,257
Debt issuance costs	1,511		1,595
Other	336		360
Total other assets	$	3,595	$	3,698

We have established certain deposits to support participation in our liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits. Insurance collateral deposits are held by the insurance company to cover past or potential open claims based upon a percentage of the expected losses under the insurance programs. Insurance collateral deposits are invested at the discretion of our insurance carrier.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Segment Reporting

Financial information by reporting segment was as follows for the periods indicated (in thousands):


	Reporting Segments
	Crude oil marketing		Trans-portation		Pipeline and storage		Logistics and repurposing (1)		Other		Total

Three Months Ended March 31, 2023
Segment revenues (2)	$	608,476	$	26,530	$	809	$	16,747	$	—	$	652,562
Less: Intersegment revenues (2)	—		(85)		(809)		(1506)		—		(2,400)
Revenues	$	608,476	$	26,445	$	—	$	15,241	$	—	$	650,162

Segment operating earnings (losses) (3)	1,907		901		(1,201)		535		—		2,142
Depreciation and amortization	2,075		3,131		263		1,581		—		7,050
Property and equipment additions (4) (5)	275		167		971		460		27		1,900

Three Months Ended March 31, 2022
Segment revenues (2)	$	747,555	$	26,718	$	897	$	—	$	—	$	775,170
Less: Intersegment revenues (2)	—		(28)		(897)		—		—		(925)
Revenues	$	747,555	$	26,690	$	—	$	—	$	—	$	774,245

Segment operating earnings (losses) (3)	10,120		2,868		(822)		—		—		12,166
Depreciation and amortization	1,788		2,957		268		—		—		5,013
Property and equipment additions (4) (5)	3,124		535		27		—		8		3,694

_______________

(1)On August 12, 2022, we acquired a transportation logistics and recycling and repurposing business, resulting in a new operating segment.

(2)Segment revenues include intersegment amounts that are eliminated due to consolidation in operating costs and expenses in our unaudited condensed consolidated statements of operations. Intersegment activities are conducted at posted tariff rates where applicable, or otherwise at rates similar to those charged to third parties or rates that we believe approximate market at the time the agreement is executed.

(3)Our crude oil marketing segment’s operating earnings included inventory valuation losses of $1.0 million and inventory liquidation gains of $8.7 million for the three months ended March 31, 2023 and 2022, respectively.

(4)Our segment property and equipment additions do not include assets acquired under finance leases during the three months ended March 31, 2023 and 2022. See Note 15 for further information.

(5)Amounts included in property and equipment additions for Other are additions for computer equipment at our corporate headquarters, which were not attributed or allocated to any of our reporting segments.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Segment operating earnings reflect revenues net of operating costs and depreciation and amortization expense and are reconciled to (losses) earnings before income taxes, as follows for the periods indicated (in thousands):


	Three Months Ended
	March 31,
	2023		2022

Segment operating earnings	$	2,142	$	12,166
General and administrative	(4,772)		(4,018)
Operating (losses) earnings	(2,630)		8,148
Interest and other income	204		24
Interest expense	(696)		(114)
(Losses) Earnings before income taxes	$	(3,122)	$	8,058

Identifiable assets by business segment were as follows at the dates indicated (in thousands):


	March 31,		December 31,
	2023		2022

Reporting segment:
Crude oil marketing	$	183,972	$	215,813
Transportation	61,115		60,405
Pipeline and storage	26,480		25,815
Logistics and repurposing	43,544		45,307
Cash and other (1)	56,452		36,819
Total assets	$	371,563	$	384,159

_______________

(1)Other identifiable assets are primarily corporate cash, corporate accounts receivable, properties and operating lease right-of-use assets not identified with any specific segment of our business.

Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Transactions with Affiliates

We enter into certain transactions in the normal course of business with affiliated entities. Activities with affiliates were as follows for the periods indicated (in thousands):


	Three Months Ended
	March 31,
	2023		2022

KSA and affiliate billings to us	$	—	$	6
Billings to KSA and affiliates	5		5
Rentals paid to an affiliate of KSA	137		114
Payments to KSA and affiliates for purchase of vehicles (1)	157		78
Rentals paid to affiliates of Scott Bosard	140		—

_______________

(1)Amounts paid to West Point Buick GMC are for the purchase of three and two pickup trucks during the three months ended March 31, 2023 and 2022, respectively.

Affiliate transactions include direct cost reimbursement for shared phone and administrative services from KSA Industries, Inc. (“KSA”), an affiliated entity. KSA was our largest shareholder until October 31, 2022 when we repurchased the common stock owned by it. An affiliate of KSA served on our Board of Directors through the date of our 2023 annual meeting. We lease our corporate office space in a building operated by 17 South Briar Hollow Lane, LLC, an affiliate of KSA. In addition, we purchase pickup trucks from West Point Buick GMC, an affiliate of KSA.

In connection with the acquisition of Firebird and Phoenix on August 12, 2022, we entered into four operating lease agreements for office and terminal locations with entities owned by Scott Bosard, one of the sellers, for periods ranging from two to five years.

Note 10. Other Current Liabilities

The components of other current liabilities were as follows at the dates indicated (in thousands):


	March 31,		December 31,
	2023		2022

Accrual for payroll, benefits and bonuses	$	4,134	$	6,435
Accrued automobile and workers’ compensation claims	5,269		5,579
Contingent consideration for acquisition	2,566		2,566
Accrued medical claims	936		1,007
Accrued taxes	2,185		2,208
Other	1,537		1,419
Total other current liabilities	$	16,627	$	19,214

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Long-Term Debt

On October 27, 2022, we entered into a Credit Agreement (the “Credit Agreement”) with Cadence Bank, as administrative agent, swingline lender and issuing lender, and the other lenders party thereto (collectively, the “Lenders”). The Credit Agreement provides for (a) a revolving credit facility that allows for borrowings up to $60.0 million in aggregate principal amount from time to time (the “Revolving Credit Facility”) and (b) a Term Loan in aggregate principal amount of $25.0 million (the “Term Loan”). The Revolving Credit Facility matures on October 27, 2027 unless earlier terminated.

At March 31, 2023, we had $23.8 million outstanding under the Term Loan at a weighted average interest rate of 6.81 percent, and $20.4 million letters of credit outstanding at a fee of 2.00 percent. No amounts were outstanding under the Revolving Credit Facility. The following table presents the scheduled maturities of principal amounts of our debt obligations at March 31, 2023 for the next five years, and in total thereafter (in thousands):


Remainder of 2023	$	1,875
2024	2,500
2025	2,500
2026	2,500
2027	14,375
Total debt maturities	$	23,750

At March 31, 2023, we were in compliance with all covenants under the Credit Agreement.

Note 12. Derivative Instruments and Fair Value Measurements

Derivative Instruments

In the normal course of our operations, our crude oil marketing segment purchases and sells crude oil. We seek to profit by procuring the commodity as it is produced and then delivering the material to the end users or the intermediate use marketplace. As typical for the industry, these transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts. Some of these contracts meet the definition of a derivative instrument, and therefore, we account for these contracts at fair value, unless the normal purchase and sale exception is applicable. These types of underlying contracts are standard for the industry and are the governing document for our crude oil marketing segment. None of our derivative instruments have been designated as hedging instruments.

At March 31, 2023, we had in place one commodity purchase and sale contract, entered into in March 2023 for a total of 100,000 barrels of crude oil to be purchased and sold in April 2023, and one commodity purchase contract, entered into in 2022, for the purchase of 126,000 gallons of diesel fuel per month during January 2023 through December 2023.

At December 31, 2022, we had in place three commodity purchase and sale contracts, entered into in 2022 for a total of 300,000 barrels of crude oil to be purchased and sold in January 2023, and one commodity purchase contract, also entered into in 2022, for the purchase of 126,000 gallons of diesel fuel per month during January 2023 through December 2023.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheets were as follows at the dates indicated (in thousands):


	Balance Sheet Location and Amount
	Current		Other		Current		Other
	Assets		Assets		Liabilities		Liabilities
March 31, 2023
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	$	157	$	—	$	—	$	—
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	—		—		—		—
Less counterparty offsets	—		—		—		—
As reported fair value contracts	$	157	$	—	$	—	$	—

December 31, 2022
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	$	—	$	—	$	—	$	—
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation	—		—		330		—
Less counterparty offsets	—		—		—		—
As reported fair value contracts	$	—	$	—	$	330	$	—

We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At March 31, 2023 and December 31, 2022, we were not holding nor have we posted any collateral to support our forward month fair value derivative activity. We are not subject to any credit-risk related trigger events. We have no other financial investment arrangements that would serve to offset our derivative contracts.

Forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated statements of operations were as follows for the periods indicated (in thousands):


	Gains (losses)
	Three Months Ended
	March 31,
	2023	2022

Revenues – marketing	$