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Table of Contents


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 September 30, 2022

OR

☐ 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 AE 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 2,452,404 shares of Common Stock were outstanding at November 1, 2022.

Table of Contents


ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

Page Number
2
3
4
5
7



1
Table of Contents


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
2022 2021
ASSETS
Current assets:
Cash and cash equivalents $ 86,510  $ 97,825 
Restricted cash 7,404  9,492 
Accounts receivable, net of allowance for doubtful
accounts of $88 and $108, respectively
 198,790  137,789 
Accounts receivable – related party 5  2 
Inventory 29,844  18,942 
Derivative assets 2,036  347 
Income tax receivable —  6,424 
Prepayments and other current assets 2,058  2,389 
Total current assets 326,647  273,210 
Property and equipment, net 107,991  88,036 
Operating lease right-of-use assets, net 7,906  7,113 
Intangible assets, net 10,379  3,317 
Goodwill 5,755  — 
Other assets 3,445  3,027 
Total assets $ 462,123  $ 374,703 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 217,123  $ 168,224 
Accounts payable – related party 20  — 
Derivative liabilities 129  324 
Current portion of finance lease obligations 4,263  3,663 
Current portion of operating lease liabilities 2,724  2,178 
Other current liabilities 20,972  11,622 
Total current liabilities 245,231  186,011 
Other long-term liabilities:
Long-term debt 15,000  — 
Asset retirement obligations 2,474  2,376 
Finance lease obligations 9,934  9,672 
Operating lease liabilities 5,179  4,938 
Deferred taxes and other liabilities 15,054  11,320 
Total liabilities 292,872  214,317 
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, 4,394,837 and 4,355,001 shares outstanding, respectively
 438  433 
Contributed capital 18,218  16,913 
Retained earnings 150,595  143,040 
Total shareholders’ equity 169,251  160,386 
Total liabilities and shareholders’ equity $ 462,123  $ 374,703 
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
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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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenues:
Marketing $ 814,394  $ 543,228  $ 2,524,465  $ 1,310,343 
Transportation 29,830  24,826  86,054  69,558 
Pipeline and storage —  127  —  515 
Logistics and repurposing 8,677  —  8,677  — 
Total revenues 852,901  568,181  2,619,196  1,380,416 
Costs and expenses:
Marketing 807,316  537,362  2,498,474  1,285,650 
Transportation 23,732  19,605  68,271  56,143 
Pipeline and storage 640  562  1,799  1,594 
Logistics and repurposing 7,582  —  7,582  — 
General and administrative 4,630  3,502  12,860  9,839 
Depreciation and amortization 6,008  4,849  16,109  14,703 
Total costs and expenses 849,908  565,880  2,605,095  1,367,929 
Operating earnings 2,993  2,301  14,101  12,487 
Other income (expense):
Interest and other income 338  37  665  233 
Interest expense (119) (178) (369) (602)
Total other income (expense), net 219  (141) 296  (369)
Earnings before income taxes 3,212  2,160  14,397  12,118 
Income tax provision (1,022) (614) (3,641) (3,055)
Net earnings $ 2,190  $ 1,546  $ 10,756  $ 9,063 
Earnings per share:
Basic net earnings per common share $ 0.50  $ 0.36  $ 2.46  $ 2.13 
Diluted net earnings per common share $ 0.50  $ 0.36  $ 2.44  $ 2.12 
Dividends per common share $ 0.24  $ 0.24  $ 0.72  $ 0.72 


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)
Nine Months Ended
September 30,
2022 2021
Operating activities:
Net earnings $ 10,756  $ 9,063 
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 16,109  14,703 
Gains on sales of property (1,709) (532)
Provision for doubtful accounts (20) (3)
Stock-based compensation expense 712  641 
Deferred income taxes (1,761) (1,664)
Net change in fair value contracts (1,884) (32)
Changes in assets and liabilities:
Accounts receivable (56,060) (30,367)
Accounts receivable/payable, affiliates 17  (5)
Inventories (10,259) (5,026)
Income tax receivable 6,424  7,099 
Prepayments and other current assets 468  1,455 
Accounts payable 46,925  68,766 
Accrued liabilities 6,489  770 
Other (375) (636)
Net cash provided by operating activities 15,832  64,232 
Investing activities:
Property and equipment additions (6,797) (9,929)
Acquisition of Firebird and Phoenix, net of cash acquired (33,590) — 
Proceeds from property sales 2,209  1,886 
Insurance and state collateral refunds 331  — 
Net cash used in investing activities (37,847) (8,043)
Financing activities:
Borrowings under Credit Agreement 45,000  8,000 
Repayments under Credit Agreement (30,000) — 
Principal repayments of finance lease obligations (3,491) (3,240)
Payment for financed portion of VEX acquisition —  (10,000)
Net proceeds from sale of equity 283  2,504 
Dividends paid on common stock (3,180) (3,096)
Net cash provided by (used in) financing activities 8,612  (5,832)
(Decrease) Increase in cash and cash equivalents, including restricted cash (13,403) 50,357 
Cash and cash equivalents, including restricted cash, at beginning of period 107,317  52,065 
Cash and cash equivalents, including restricted cash, at end of period $ 93,914  $ 102,422 


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, 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 
Net earnings —  —  2,476  2,476 
Stock-based compensation expense —  263  —  263 
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards —  (24) —  (24)
Shares sold at the market 1  282  —  283 
Dividends declared:
Common stock, $0.24/share
 —  —  (1,049) (1,049)
Awards under LTIP, $0.24/share
 —  —  (18) (18)
Balance, June 30, 2022
 436  17,541  149,475  167,452 
Net earnings —  —  2,190  2,190 
Stock-based compensation expense —  254  —  254 
Issuance of common shares for acquisition 2  423  —  425 
Dividends declared:
Common stock, $0.24/share
 —  —  (1,054) (1,054)
Awards under LTIP, $0.24/share
 —  —  (16) (16)
Balance, September 30, 2022
 $ 438  $ 18,218  $ 150,595  $ 169,251 












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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, 2021
 $ 423  $ 13,340  $ 135,329  $ 149,092 
Net earnings —  —  2,808  2,808 
Stock-based compensation expense —  185  —  185 
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards —  (31) —  (31)
Dividends declared:
Common stock, $0.24/share
 —  —  (1,019) (1,019)
Awards under LTIP, $0.24/share
 —  —  (18) (18)
Balance, March 31, 2021
 423  13,494  137,100  151,017 
Net earnings —  —  4,709  4,709 
Stock-based compensation expense —  232  —  232 
Vesting of restricted awards 1  (1) —  — 
Cancellation of shares withheld to cover
  taxes upon vesting of restricted awards —  (70) —  (70)
Dividends declared:
Common stock, $0.24/share
 —  —  (1,021) (1,021)
Awards under LTIP, $0.24/share
 —  —  (16) (16)
Balance, June 30, 2021
 424  13,655  140,772  154,851 
Net earnings —  —  1,546  1,546 
Stock-based compensation expense —  224  —  224 
Shares sold at the market 8  2,496  —  2,504 
Dividends declared:
Common stock, $0.24/share
 —  —  (1,027) (1,027)
Awards under LTIP, $0.24/share
 —  —  (16) (16)
Balance, September 30, 2021
 $ 432  $ 16,375  $ 141,275  $ 158,082 

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, transportation, terminalling and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also 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.  

On August 12, 2022, we completed our acquisition of all of the equity interests of Firebird Bulk Carriers, Inc. (“Firebird”) and Phoenix Oil, Inc. (“Phoenix”). The condensed consolidated financial statements prior to August 12, 2022 reflect only the historical results of Adams. The condensed consolidated financial statements since the completion of the Firebird and Phoenix acquisition have included the results of Firebird and Phoenix using the acquisition method of accounting. See Note 6 for further information regarding the acquisition.

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) beginning in the third quarter of 2022, 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, which includes the businesses we acquired in August 2022 (see Note 6 for further information regarding our business acquisition). See Note 8 for further information regarding our business segments.

Basis of Presentation

Our results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of results expected for the full year of 2022. 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, 2021 (the “2021 Form 10-K”) filed with the SEC on March 9, 2022. 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):

September 30, December 31,
2022 2021
Cash and cash equivalents $ 86,510  $ 97,825 
Restricted cash:
Captive insurance subsidiary (1)
 7,404  9,492 
Total cash, cash equivalents and restricted cash shown in the
unaudited condensed consolidated statements of cash flows $ 93,914  $ 107,317 
_____________
(1)$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, 2022
 4,355,001 
Vesting of restricted stock unit awards (see Note 13)
 15,966 
Shares withheld to cover taxes upon vesting of restricted stock unit awards (3,101)
Balance, March 31, 2022
 4,367,866 
Vesting of restricted stock unit awards (see Note 13)
 2,953 
Shares withheld to cover taxes upon vesting of restricted stock unit awards (705)
Shares sold at the market 8,202 
Balance, June 30, 2022
 4,378,316 
Issuance of shares in acquisition (see Note 6)
 15,259 
Vesting of restricted stock unit awards (see Note 13)
 973 
Vesting of performance share unit awards (see Note 13)
 289 
Balance, September 30, 2022 (1)
 4,394,837 
_____________
(1)On October 31, 2022, we repurchased 1,942,433 of our common shares. See Note 17 for further information.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Earnings Per Share

Basic earnings per share is computed by dividing our net earnings by the weighted average number of common shares outstanding during the period. Diluted earnings 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).

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

Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Earnings per share — numerator:
Net earnings $ 2,190  $ 1,546  $ 10,756  $ 9,063 
Denominator:
Basic weighted average number of shares outstanding 4,387  4,274  4,373  4,258 
Basic earnings per share $ 0.50  $ 0.36  $ 2.46  $ 2.13 
Diluted earnings per share:
Diluted weighted average number of shares outstanding:
Common shares 4,387  4,274  4,373  4,258 
Restricted stock unit awards 20  17  21  16 
Performance share unit awards (1)
 13  6  12  6 
Total diluted shares 4,420  4,297  4,406  4,280 
Diluted earnings per share $ 0.50  $ 0.36  $ 2.44  $ 2.12 
_______________
(1)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 nine months ended September 30, 2022, we received net proceeds of approximately $0.3 million (net of offering costs to B. Riley Securities, Inc. of $14 thousand) from the sale of 8,202 of our common shares at an average price per share of approximately $37.38 in at-the-market offerings under our At Market Issuance Sales Agreement with B. Riley Securities, Inc. dated December 23, 2020. No shares were sold during the three months ended September 30, 2022.

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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.

See Note 6 for a discussion of the Level 3 inputs used in the determination of the fair value of the intangible assets acquired and the contingent consideration issued in a business combination that occurred in August 2022.

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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, permitted net operating losses (“NOL”) incurred in tax years 2018, 2019 and 2020 to offset 100 percent of taxable income and be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. We carried back our NOL for fiscal year 2020 to fiscal years 2015 and 2016, and in June 2022, we received a cash refund of approximately $6.8 million.

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. No charges were recognized during the three and nine months ended September 30, 2022 and 2021.

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.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
 Crude Oil Marketing:
Revenue from contracts with customers:
Goods transferred at a point in time $ 802,707  $ 535,166  $ 2,491,066  $ 1,285,461 
Services transferred over time —  —  —  — 
Total revenues from contracts with customers 802,707  535,166  2,491,066  1,285,461 
Other (1)
 11,687  8,062  33,399  24,882 
Total crude oil marketing revenue $ 814,394  $ 543,228  $ 2,524,465  $ 1,310,343 
 Transportation:
Revenue from contracts with customers:
Goods transferred at a point in time $ —  $ —  $ —  $ — 
Services transferred over time 29,830  24,826  86,054  69,558 
Total revenues from contracts with customers 29,830  24,826  86,054  69,558 
Other —  —  —  — 
Total transportation revenue $ 29,830  $ 24,826  $ 86,054  $ 69,558 
 Pipeline and storage:
Revenue from contracts with customers:
Goods transferred at a point in time $ —  $ —  $ —  $ — 
Services transferred over time —  127  —  515 
Total revenues from contracts with customers —  127  —  515 
Other —  —  —  — 
Total pipeline and storage revenue $ —  $ 127  $ —  $ 515 
 Logistics and repurposing: (2)
Revenue from contracts with customers:
Goods transferred at a point in time (3)
 $ 4,178  $ —  $ 4,178  $ — 
Services transferred over time (4)
 4,499  —  4,499  — 
Total revenues from contracts with customers 8,677  —  8,677  — 
Other —  —  —  — 
Total logistics and repurposing revenue $ 8,677  $ —  $ 8,677  $ — 
Subtotal:
Total revenues from contracts with customers $ 841,214  $ 560,119  $ 2,585,797  $ 1,355,534 
Total other (1)
 11,687  8,062  33,399  24,882 
Total consolidated revenues $ 852,901  $ 568,181  $ 2,619,196  $ 1,380,416 
_______________
(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)On August 12, 2022, we acquired a transportation logistics and recycling and repurposing business, resulting in a new operating segment. See Note 6 and Note 9 for further information.
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(3)Revenues from the transportation of petroleum products are earned over time as the performance obligation is satisfied.
(4)Revenues from the sale of petroleum products are earned at a point in time when control of the product transfers to the customer and the performance obligation is satisfied.

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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenue gross-up $ 430,244  $ 201,704  $ 1,156,711  $ 526,082 


Note 4. Prepayments and Other Current Assets

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

September 30, December 31,
2022 2021
Insurance premiums $ 344  $ 641 
Vendor prepayment —  602 
Rents, licenses and other 1,714  1,146 
Total prepayments and other current assets $ 2,058  $ 2,389 


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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 September 30, December 31,
in Years 2022 2021
Tractors and trailers
5 – 6
 $ 131,214  $ 106,558 
Field equipment
2 – 5
 24,489  22,851 
Finance lease ROU assets (1)
3 – 6
 21,583  22,349 
Pipeline and related facilities
20 – 25
 20,362  20,336 
Linefill and base gas (2)
 N/A 3,922  3,922 
Buildings
5 – 39
 16,163  16,163 
Office equipment
2 – 5
 2,928  2,060 
Land N/A 2,309  2,008 
Construction in progress N/A 1,617  3,396 
Total 224,587  199,643 
Less accumulated depreciation and amortization (116,596) (111,607)
Property and equipment, net $ 107,991  $ 88,036 
_______________
(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 $8.4 million and $9.8 million at September 30, 2022 and December 31, 2021, 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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Depreciation and amortization, excluding amounts under finance leases $ 4,685  $ 3,665  $ 12,317  $ 11,169 
Amortization of property and equipment under finance leases 1,323  1,184  3,792  3,534 
Total depreciation and amortization $ 6,008  $ 4,849  $ 16,109  $ 14,703 


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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 and Phoenix for approximately $39.7 million, consisting of a cash payment of $35.8 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 operated 123 tractors and 216 trailers largely in the Eagle Ford basin at the time of the acquisition. 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.

The following table summarizes the aggregate preliminary consideration paid and issued for Firebird and Phoenix (in thousands):

Cash $ 35,793 
Value of AE common shares issued 1,364 
Contingent consideration arrangement 2,566 
Fair value of total consideration transferred $ 39,723 

The fair market value of the common shares issued in this transaction was determined based upon the closing share price of AE common stock on August 12, 2022 of $33.75, discounted to present value using the appropriate discount rate.

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 indentifiable intangible assets acquired and liabilities assumed in the acquisition.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the preliminary purchase price allocation to estimated fair values of the identifiable assets acquired and liabilities assumed at the acquisition date of August 12, 2022 (in thousands):

Assets acquired:
Cash and cash equivalents $ 2,203 
Accounts receivable 4,921 
Inventory 643 
Other current assets 137 
Property and equipment 24,709 
Intangible assets 7,734 
Goodwill 5,755 
Other assets 457 
Total assets acquired $ 46,559 
Liabilities assumed:
Accounts payable and other accrued liabilities $ (1,945)
Deferred tax liabilities (4,891)
Total liabilities assumed $ (6,836)
Net assets acquired $ 39,723 

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.

The estimated fair value of the acquired property and equipment was determined using a combination of the cost approach and the market approach, specifically determining the replacement cost value of each type of asset.

Acquired identifiable intangible assets consists of approximately $5.2 million for customer relationships, $2.2 million for trade names, and $0.3 million for noncompete agreements entered into in connection with the acquisition. The estimated fair value of the acquired customer relationship intangible assets was determined using an income approach, specifically a discounted cash flow analysis, and are being amortized on a modified straight-line basis over a period of ten years, with the amortization more heavily weighted in the earlier years. The income approach estimates the future benefits of the customer relationships and deducts the expenses incurred in servicing the relationships and the contributions from the other business assets to derive the future net benefits of these assets. The future net benefits are discounted back to present value using the appropriate discount rate, which results in the value of the customer relationships. The estimated fair value of the trade names was determined using the relief from royalty method, a form of the income approach, and are being amortized on a straight-line basis over a period of 15 years. The estimated fair value of the noncompete agreements was determined using an income approach, specifically a discounted cash flow analysis, and are being amortized over a period of five years.

The goodwill of approximately $5.8 million arising from this acquisition is primarily attributed to our ability to generate increased revenues, earnings and cash flow by expanding our addressable market and client base and with the assembled workforce that we acquired. None of the goodwill is expected to be deductible for tax purposes. We recorded net tax liabilities of approximately $4.9 million related to the tax effect of our estimated fair value allocations.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The discounted cash flow analysis used to estimate the fair value of the Firebird and Phoenix intangible assets relied on Level 3 fair value inputs. Level 3 fair values are based on unobservable inputs. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date. The valuations were based on the information that was available as of the acquisition date, and the expectations and assumptions that have been deemed reasonable by our management. There are inherent uncertainties and management judgment required in these determinations. The fair value measurements of the assets acquired and liabilities assumed were based on valuations involving significant unobservable inputs, or Level 3 in the fair value hierarchy.

The contribution of this newly acquired business to our consolidated revenues and net earnings was $8.7 million and $0.2 million, respectively, for both the three and nine months ended September 30, 2022. We incurred approximately $0.3 million of acquisition costs in connection with this acquisition, which have been expensed in general and administrative expense as incurred.

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, 2021. 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, 2021, nor of the results of operations that may be obtained in the future (in thousands).

Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenues $ 860,771  $ 581,334  $ 2,663,447  $ 1,417,475 
Net earnings 2,295  2,056  12,867  10,430 
Basic net earnings per common share $ 0.52  $ 0.48  $ 2.93  $ 2.44 
Diluted net earnings per common share $ 0.52  $ 0.48  $ 2.91  $ 2.43 



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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):

September 30, December 31,
2022 2021
Amounts associated with liability insurance program:
Insurance collateral deposits $ 390  $ 721 
Excess loss fund 622  622 
Accumulated interest income 523  489 
Other amounts:
State collateral deposits 36  36 
Materials and supplies 1,209  574 
Debt issuance costs 392  292 
Other 273  293 
Total other assets $ 3,445  $ 3,027 

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 maximum assessment under our insurance policies. Insurance collateral deposits are invested at the discretion of our insurance carrier. Excess amounts in our loss fund represent premium payments in excess of claims incurred to date that we may be entitled to recover through settlement or commutation as claim periods are closed. Interest income is earned on the majority of amounts held by the insurance companies and will be paid to us upon settlement of policy years.


Note 8. Segment Reporting

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) beginning in the third quarter of 2022, 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, which includes the businesses we acquired in August 2022 (see Note 6 for further information about our business acquisition).

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 repur-posing (1)
 Other Total
Three Months Ended September 30, 2022
Segment revenues (2)
 $ 814,394  $ 29,983  $ 2,912  $ 8,677  $ —  $ 855,966 
Less: Intersegment revenues (2)
 —  (153) (2,912) —  —  (3,065)
Revenues $ 814,394  $ 29,830  $ —  $ 8,677  $ —  $ 852,901 
Segment operating earnings (losses) (3)
 5,070  3,307  (909) 155  —  7,623 
Depreciation and amortization 2,008  2,791  269  940  —  6,008 
Property and equipment additions (4) (5)
 343  722  817  132  —  2,014 
Three Months Ended September 30, 2021
Segment revenues (2)
 $ 543,228  $ 24,867  $ 738  $ —  $ —  $ 568,833 
Less: Intersegment revenues (2)
 —  (41) (611) —  —  (652)
Revenues $ 543,228  $ 24,826  $ 127  $ —  $ —  $ 568,181 
Segment operating earnings (losses) (3)
 4,255  2,264  (716) —  —  5,803 
Depreciation and amortization 1,611  2,957  281  —  —  4,849 
Property and equipment additions (4) (5)
 443  4,904  980  —  —  6,327 
Nine Months Ended September 30, 2022
Segment revenues (2)
 $ 2,524,465  $ 86,322  $ 5,869  $ 8,677  $ —  $ 2,625,333 
Less: Intersegment revenues (2)
 —  (268) (5,869) —  —  (6,137)
Revenues $ 2,524,465  $ 86,054  $ —  $ 8,677  $ —  $ 2,619,196 
Segment operating earnings (losses) (3)
 20,301  9,112  (2,607) 155  —  26,961 
Depreciation and amortization 5,690  8,671  808  940  —  16,109 
Property and equipment additions (4) (5)
 4,351  1,416  890  132  8  6,797 
Nine Months Ended September 30, 2021
Segment revenues (2)
 $ 1,310,343  $ 69,670  $ 1,808  $ —  $ —  $ 1,381,821 
Less: Intersegment revenues (2)
 —  (112) (1,293) —  —  (1,405)
Revenues $ 1,310,343  $ 69,558  $ 515  $ —  $ —  $ 1,380,416 
Segment operating earnings (losses) (3)
 19,643  4,520  (1,837) —  —  22,326 
Depreciation and amortization 5,050  8,895  758  —  —  14,703 
Property and equipment additions (4) (5)
 1,145  7,607  1,169  —  8  9,929 
_______________
(1)On August 12, 2022, we acquired a transportation logistics and recycling and repurposing business, resulting in a new operating segment. See Note 6 and Note 9 for further information.
(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 $5.1 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, our crude oil marketing segment’s operating earnings included inventory liquidation gains of $2.1 million and $10.3 million, respectively.
(4)Our segment property and equipment additions do not include assets acquired under finance leases during the three and nine months ended September 30, 2022 and 2021. See Note 15 for further information.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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.

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

Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Segment operating earnings $ 7,623  $ 5,803  $ 26,961  $ 22,326 
General and administrative (4,630) (3,502) (12,860) (9,839)
Operating earnings 2,993  2,301  14,101  12,487 
Interest and other income 338  37  665  233 
Interest expense (119) (178) (369) (602)
Earnings before income taxes $ 3,212  $ 2,160  $ 14,397  $ 12,118 

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

September 30, December 31,
2022 2021
Reporting segment:
Crude oil marketing $ 231,014  $ 162,770 
Transportation 61,429  67,167 
Pipeline and storage 25,742  25,569 
Logistics and repurposing (1)
 45,404  — 
Cash and other (2)
 98,534  119,197 
Total assets $ 462,123  $ 374,703 
_______________
(1)On August 12, 2022, we acquired a transportation logistics and recycling and repurposing business, resulting in a new operating segment. See Note 6 and Note 9 for further information.
(2)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 including direct cost reimbursement for shared phone and administrative services from KSA Industries, Inc. (“KSA”), an affiliated entity. We lease our corporate office space in a building operated by 17 South Briar Hollow Lane, LLC, an affiliate of KSA.

Activities with affiliates were as follows for the periods indicated (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Affiliate billings to us $ 1  $ 1  $ 7  $ 13 
Billings to affiliates 5  4  15  10 
Rentals paid to affiliate 136  144  388  461 

During the nine months ended September 30, 2022, we paid West Point Buick GMC, an affiliate of KSA, a total of approximately $0.1 million (net of trade-in values) for the purchase of two pickup trucks. During the nine months ended September 30, 2021, we paid West Point Buick GMC, an affiliate of KSA, a total of approximately $0.5 million (net of trade-in values) for the purchase of ten pickup trucks.

In connection with the acquisition of Firebird and Phoenix, we entered into three operating lease agreements for office and terminal locations with Scott Bosard, one of the Sellers, for periods ranging from two to five years. For the period from acquisition through September 30, 2022, we paid approximately $0.1 million in rental fees to Scott Bosard.

See Note 17 for further information regarding our relationship with KSA.


Note 10. Other Current Liabilities

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

September 30, December 31,
2022 2021
Accrual for payroll, benefits and bonuses $ 6,579  $ 5,210 
Accrued automobile and workers’ compensation claims 4,174  4,127 
Accrued medical claims 1,718  1,100 
Accrued taxes 4,627  534 
Other 3,874  651 
Total other current liabilities $ 20,972  $ 11,622 


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Credit Agreement

Credit Agreement

On May 4, 2021, we entered into a $40.0 million credit agreement (“Credit Agreement”) with Wells Fargo Bank, National Association, as Agent and Issuing Lender, under which we could borrow or issue letters of credit in an aggregate of up to $40.0 million under a revolving credit facility (“Revolving Credit Facility”), which was to mature on May 4, 2024, subject to our compliance with certain financial covenants. On August 11, 2022, we entered into an amendment to our Credit Agreement (the “Credit Agreement Amendment”), which increased our borrowing capacity up to $60.0 million. The Credit Agreement Amendment also extended the maturity of the facility to August 11, 2025.

The Credit Agreement Amendment also provided for the replacement of LIBOR with the Secured Overnight Financing Rate, as administered by the Federal Reserve Bank of New York (“SOFR”). Borrowings under the Revolving Credit Facility, which remained in place at September 30, 2022, bore interest, at our election, at (i) the Base Rate plus Applicable Margin; or (ii) the Adjusted Term SOFR plus Applicable Margin. Base Rate is the highest of (a) the Prime Rate, (b) the Federal Funds Rate, plus 0.50 percent and (c) Adjusted TERM SOFR for an interest period of one month plus 1.00 percent. The Applicable Margin to be added to a Base Rate borrowing was 0.75 percent. The Applicable Margin to be added to an Adjusted Term SOFR borrowing was 1.75 percent. A commitment fee of 0.25 percent per annum accrued on the daily average unused amount of the commitments under the Revolving Credit Facility.

At September 30, 2022, we had $15.0 million of borrowings outstanding under our Credit Agreement Amendment and $8.2 million of letters of credit issued under the Credit Agreement Amendment at a fee of 1.75 percent per annum. At September 30, 2022, we were in compliance with all financial covenants under the Credit Agreement Amendment.

See Note 17 for further information regarding our 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 September 30, 2022, we had in place ten commodity purchase and sale contracts, all of which had a fair value associated with them as the contractual prices of crude oil were outside of the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately 324 barrels per day of crude oil during October 2022 through December 2022, and also include purchase and sale contracts entered into in August 2022 for an additional 300,000 barrels of crude oil in October 2022.

At December 31, 2021, we had in place four commodity purchase and sale contracts, of which two had a fair value associated with them as the contractual prices of crude oil were outside the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately 324 barrels per day of crude oil during January 2022 through December 2022.
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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
September 30, 2022
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation $ 2,036  $ —  $ —  $ — 
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation —  —  129  — 
Less counterparty offsets —  —  —  — 
As reported fair value contracts $ 2,036  $ —  $ 129  $ — 
December 31, 2021
Asset derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation $ 347  $ —  $ —  $ — 
Liability derivatives:
Fair value forward hydrocarbon commodity
contracts at gross valuation —  —  324  — 
Less counterparty offsets —  —  —  — 
As reported fair value contracts $ 347  $ —  $ 324  $ — 

We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At September 30, 2022 and December 31, 2021, 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 Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenues – marketing $ (14) $ 6  $ (9) $ 31 
Cost and expenses – marketing 1,878  —  1,253  — 


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements

The following tables set forth, by level with the Level 1, 2 and 3 fair value hierarchy, the carrying values of our financial assets and liabilities at the dates indicated (in thousands):

Fair Value Measurements Using
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Assets Observable Unobservable
and Liabilities Inputs Inputs Counterparty
(Level 1) (Level 2) (Level 3) Offsets Total
September 30, 2022
Derivatives:
Current assets $ —  $ 2,036  $ —  $ —  $ 2,036 
Current liabilities —  (129) —  —  (129)
Net value $ —  $ 1,907  $ —  $ —  $ 1,907 
December 31, 2021
Derivatives:
Current assets $ —  $ 347  $ —  $ —  $ 347 
Current liabilities —  (324) —  —  (324)
Net value $ —  $ 23  $ —  $ —  $ 23 

These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input used to estimate their fair value. Our assessment of the relative significance of these inputs requires judgments.

When determining fair value measurements, we make credit valuation adjustments to reflect both our own nonperformance risk and our counterparty’s nonperformance risk. When adjusting the fair value of derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements. Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by us or our counterparties. At September 30, 2022 and December 31, 2021, credit valuation adjustments were not significant to the overall valuation of our fair value contracts. As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.


Note 13. Stock-Based Compensation Plan

We have in place a long-term incentive plan in which any employee or non-employee director who provides services to us is eligible to participate. The 2018 LTIP, which is overseen by the Compensation Committee of our Board of Directors, provides for the grant of various types of equity awards, of which restricted stock unit awards and performance-based compensation awards have been granted. In May 2022, our shareholders approved an amendment and restatement of the 2018 LTIP, in which the maximum number of shares authorized for issuance under the 2018 LTIP was increased by 150,000 shares to a total of 300,000 shares, and the term of the 2018 LTIP was extended through February 23, 2032. After giving effect to awards granted and forfeitures made under the 2018 LTIP and assuming the potential achievement of the maximum amounts of the performance factors through September 30, 2022, a total of 157,697 shares were available for issuance.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In August 2022, we also granted 30,518 restricted stock units to two employees of an acquired company, outside of the 2018 LTIP, as equity inducement awards under applicable stock exchange listing rules.

Compensation expense recognized in connection with equity-based awards was as follows for the periods indicated (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Compensation expense $ 254  $ 224  $ 712  $ 641 

At September 30, 2022 and December 31, 2021, we had $107,200 and $82,500, respectively, of accrued dividend amounts for awards granted under the 2018 LTIP or under the inducement awards described above.

Restricted Stock Unit Awards

The following table presents restricted stock unit award activity for the periods indicated:
Weighted-
Average Grant
Number of Date Fair Value
Shares
per Share (1)
Restricted stock unit awards at January 1, 2022
 38,265  $ 28.78 
Granted under 2018 LTIP (2)
 26,796  $ 31.83 
Granted as inducement awards (3)
 30,518  $ 33.75 
Vested (19,892) $ 29.15 
Forfeited (3,521) $ 30.33 
Restricted stock unit awards at September 30, 2022
 72,166  $ 31.84 
_______________
(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
(2)The aggregate grant date fair value of restricted stock unit awards issued during the first nine months of 2022 was $0.9 million based on a grant date market price of our common shares ranging from $31.80 to $37.42 per share.
(3)These awards were granted in connection with the acquisition of Phoenix and Firebird (see Note 6 for further information). The aggregate grant date fair value of these restricted stock unit awards issued on August 12, 2022 was $1.0 million based on a grant date market price of our common shares of $33.75 per share.

Unrecognized compensation cost associated with restricted stock unit awards was approximately $0.6 million at September 30, 2022. Due to the graded vesting provisions of these awards, we expect to recognize the remaining compensation cost for these awards over a weighted-average period of 1.4 years.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Performance Share Unit Awards

The following table presents performance share unit award activity for the periods indicated:
Weighted-
Average Grant
Number of Date Fair Value
Shares
per Share (1)
Performance share unit awards at January 1, 2022
 21,492  $ 26.64 
Granted (2)
 13,458  $ 31.80 
Vested (289) $ 28.25 
Forfeited (1,297) $ 30.87 
Performance share unit awards at September 30, 2022
 33,364  $ 28.54 
_______________
(1)Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
(2)The aggregate grant date fair value of performance share unit awards issued during the first nine months of 2022 was $0.4 million based on a grant date market price of our common shares of $31.80 per share and assuming a performance factor of 100 percent.

Unrecognized compensation cost associated with performance share unit awards was approximately $0.5 million at September 30, 2022. We expect to recognize the remaining compensation cost for these awards over a weighted-average period of 2.0 years.


Note 14. Supplemental Cash Flow Information

Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):
Nine Months Ended
September 30,
2022 2021
Cash paid for interest $ 369  $ 602 
Cash paid for federal and state income taxes 1,827  1,297 
Cash refund for NOL carryback under CARES Act 6,907  3,712 
Non-cash transactions:
Change in accounts payable related to property and equipment additions —  (72)
Property and equipment acquired under finance leases 4,353  2,083 
Issuance of shares for acquisition (see Note 6)
 1,364  — 

See Note 15 for information related to other non-cash transactions related to leases.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Leases

The following table provides the components of lease expense for the periods indicated (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Finance lease cost:
Amortization of ROU assets $ 1,306  $ 1,184  $ 3,775  $ 3,534 
Interest on lease liabilities 84  101  242  321 
Operating lease cost 781  643  2,130  1,890 
Short-term lease cost 3,752  3,701  11,335  10,399 
Variable lease cost 6  2  16  4 
Total lease expense $ 5,929  $ 5,631  $ 17,498  $ 16,148 

The following table provides supplemental cash flow and other information related to leases for the periods indicated (in thousands):
Nine Months Ended
September 30,
2022 2021
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases (1)
 $ 2,112  $ 1,886 
Operating cash flows from finance leases (1)
 238  260 
Financing cash flows from finance leases 3,491  3,240 
ROU assets obtained in exchange for new lease liabilities:
Finance leases 4,353  2,083 
Operating leases 2,715  1,157 
______________
(1)Amounts are included in Other operating activities on the unaudited condensed consolidated statements of cash flows.

The following table provides the lease terms and discount rates for the periods indicated:

Nine Months Ended
September 30,
2022 2021
Weighted-average remaining lease term (years):
Finance leases 3.33 3.75
Operating leases 3.57 4.06
Weighted-average discount rate:
Finance leases 2.9% 2.7%
Operating leases 3.9% 3.8%


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides supplemental balance sheet information related to leases at the dates indicated (in thousands):
September 30, December 31,
2022 2021
Assets
Finance lease ROU assets (1)
 $ 13,149  $ 12,590 
Operating lease ROU assets 7,906  7,113 
Liabilities
Current
Finance lease liabilities 4,263  3,663 
Operating lease liabilities 2,724  2,178 
Noncurrent
Finance lease liabilities 9,934  9,672 
Operating lease liabilities 5,179  4,938 
______________
(1)Amounts are included in Property and equipment, net on the unaudited condensed consolidated balance sheets.

The following table provides maturities of undiscounted lease liabilities at September 30, 2022 (in thousands):

Finance Operating
Lease Lease
Remainder of 2022 $ 1,300  $ 809 
2023 4,161  2,830 
2024 2,920  2,487 
2025 4,343  832 
2026 1,373  762 
Thereafter 958  681 
Total lease payments 15,055  8,401 
Less: Interest (858) (498)
Present value of lease liabilities 14,197  7,903 
Less: Current portion of lease obligation (4,263) (2,724)
Total long-term lease obligation $ 9,934  $ 5,179 


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides maturities of undiscounted lease liabilities at December 31, 2021 (in thousands):
Finance Operating
Lease Lease
2022 $ 3,941  $ 2,399 
2023 3,143  2,080 
2024 2,348  1,911 
2025 3,771  394 
2026 801  333 
Thereafter —  455 
Total lease payments 14,004  7,572 
Less: Interest (669) (456)
Present value of lease liabilities 13,335  7,116 
Less: Current portion of lease obligation (3,663) (2,178)
Total long-term lease obligation $ 9,672  $ 4,938 


Note 16. Commitments and Contingencies

Insurance

We have accrued liabilities for estimated workers’ compensation and other casualty claims incurred based upon claim reserves plus an estimate for loss development and incurred but not reported claims. We self-insure a significant portion of expected losses relating to workers’ compensation, general liability and automobile liability, with a self-insured retention of $1.0 million. Insurance is purchased over our retention to reduce our exposure to catastrophic events. Estimates are recorded for potential and incurred outstanding liabilities for workers’ compensation, auto and general liability claims and claims that are incurred but not reported. Estimates are based on adjusters’ estimates, historical experience and statistical methods commonly used within the insurance industry that we believe are reliable. We have also engaged a third-party actuary to perform a review of our accrued liability for these claims as well as potential funded losses in our captive insurance company. Insurance estimates include certain assumptions and management judgments regarding the frequency and severity of claims, claim development and settlement practices and the selection of estimated loss among estimates derived using different methods. Unanticipated changes in these factors may produce materially different amounts of expense that would be reported under these programs.

On October 1, 2020, we elected to utilize a wholly owned insurance captive to insure the self-insured retention for our workers’ compensation, general liability and automobile liability insurance programs. All accrued liabilities associated with periods from October 1, 2017 through current were transferred to the captive.

We maintain excess property and casualty programs with third-party insurers in an effort to limit the financial impact of significant events covered under these programs. Our operating subsidiaries pay premiums to both the excess and reinsurance carriers and our captive for the estimated losses based on an external actuarial analysis. These premiums held by our wholly owned captive are currently held in a restricted account, resulting in a transfer of risk from our operating subsidiaries to the captive.

We also maintain a self-insurance program for managing employee medical claims in excess of employee deductibles. As claims are paid, the liability is relieved. We also maintain third party insurance stop-loss coverage for individual medical claims exceeding a certain minimum threshold. In addition, we maintain $1.2 million of umbrella insurance coverage for annual aggregate medical claims exceeding approximately $11.5 million.

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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Our accruals for automobile, workers’ compensation and medical claims were as follows at the dates indicated (in thousands):

September 30, December 31,
2022 2021
Pre-funded premiums for losses incurred but not reported $ 96  $ 50 
Accrued automobile and workers’ compensation claims 4,174  4,127 
Accrued medical claims 1,718  1,100 

Litigation

From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. As an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position, results of operations or cash flows.


Note 17. Subsequent Events

New Credit Facility

On October 27, 2022, we entered into a new Credit Agreement (the “New Credit Agreement”) with Cadence Bank, as administrative agent, swingline lender and issuing lender, and the other lenders party thereto (collectively, the “Lenders”). The New 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 “New Revolving Credit Facility”) and (b) a Term Loan in aggregate principal amount of $25.0 million (the “Term Loan”).

The New Credit Agreement replaces our prior $60.0 million credit facility with Wells Fargo entered into May 4, 2021. In connection with our termination of the Credit Agreement Amendment with Wells Fargo, we deposited cash equaling 103.0 percent of the face value of three letters of credit previously issued by Wells Fargo in May 2021. The three letters of credit are fully collateralized, have no associated debt, and no draws against any of the letters of credit are pending.

For each borrowing under the New Revolving Credit Facility, we may elect whether such loans bear interest at (i) the Base Rate plus Applicable Margin for Base Rate Loans; or (ii) Term SOFR plus the Applicable Margin for SOFR Loans. The Base Rate is the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5 percent and (c) Adjusted Term SOFR for a one month tenor in effect on the date of determination plus 1.0 percent. The Applicable Margin to be added to a Base Rate borrowing under either (a), (b) or (c) in the preceding sentence is an amount determined quarterly between 1.0 percent and 2.0 percent depending on our consolidated total leverage ratio. The Applicable Margin to be added to a Term SOFR borrowing under the New Revolving Credit Facility is an amount determined quarterly between 2.0 percent and 3.0 percent depending on our consolidated total leverage ratio. A commitment fee of 0.25 percent per annum accrues on the daily average unused amount of the commitments of the Lenders under the New Revolving Credit Facility. We may obtain letters of credit under the New Revolving Credit Facility up to a maximum amount of $30.0 million. The amount of our outstanding letters of credit reduces availability under the New Revolving Credit Facility. The New Revolving Credit Facility matures on October 27, 2027 unless earlier terminated.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Term Loan amortizes on a 10 year schedule with quarterly payments beginning December 31, 2022, and matures on October 27, 2027 unless earlier accelerated. The Term Loan may be prepaid in whole or in part without premium or penalty, and must be prepaid with proceeds of any future debt issuance, the proceeds of any equity issuance to the extent proceeds exceed $2.0 million in any quarter with limited exceptions, and the proceeds of certain asset dispositions. The Term Loan bears interest at the SOFR Rate plus the Applicable Margin for SOFR Rate Loans as described above.

Pursuant to the terms of the New Credit Agreement, we are required to maintain compliance with the following financial covenants on a pro forma basis, after giving effect to any borrowings (in each case commencing with the fiscal quarter ending December 31, 2022): (i) the Consolidated Total Leverage Ratio shall not be greater than 2.50 to 1.00; (ii) the Asset Coverage Ratio shall not be less than 2.00 to 1.00; and (iii) the Consolidated Fixed Charge Coverage Ratio shall not be less than 1.25 to 1.00. Each of such ratios is calculated as outlined in the New Credit Agreement and subject to certain exclusions and qualifications described therein.

The New Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants. The affirmative covenants require us to provide the Lenders with certain financial statements, business plans, compliance certificates and other documents and reports and to comply with certain laws. The negative covenants restrict our ability to incur additional indebtedness, create additional liens on our assets, make certain investments, dispose of our assets or engage in a merger or other similar transaction or engage in transactions with affiliates, subject, in each case, to the various exceptions and conditions described in the New Credit Agreement. The negative covenants further restrict our ability to make certain restricted payments.

Our obligations under the New Credit Agreement are secured by a pledge of substantially all of our personal property and substantially all of the personal property of certain other our direct and indirect subsidiaries.

KSA Stock Repurchase

On October 31, 2022, we entered into a Stock Repurchase Agreement (the “Repurchase Agreement”) with KSA and certain members of the family of the late Kenneth Stanley Adams, Jr., our founder (collectively, the “KSA Sellers”). Prior to the transaction, KSA was our largest stockholder. Under the terms of the Repurchase Agreement, we purchased an aggregate of 1,942,433 shares of our common stock from the KSA Sellers for an aggregate purchase price of $69.9 million, at a price of $36.00 per share. Immediately following the transaction, we had 2,452,404 shares of common stock outstanding. The purchase price was funded with the proceeds of the $25.0 million term loan under our New Credit Agreement with Cadence Bank, described in more detail above, with the balance funded with cash on hand at the time of the transaction.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and accompanying Notes included in this quarterly report on Form 10-Q and the Audited Consolidated Financial Statements and related Notes, together with our discussion and analysis of financial position and results of operations, included in our annual report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as filed on March 9, 2022 with the U.S. Securities and Exchange Commission (“SEC”).  Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).


Cautionary Statement Regarding Forward-Looking Information

This quarterly report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and information that are based on our beliefs, as well as assumptions made by us and information currently available to us. When used in this document, words such as “anticipate,” “project,” “expect,” “plan,” “seek,” “goal,” “estimate,” “forecast,” “intend,” “could,” “should,” “would,” “will,” “believe,” “may,” “potential” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we believe that our expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct.  Forward-looking statements are subject to a variety of risks, uncertainties and assumptions as described in more detail under Part I, Item 1A of our 2021 Form 10-K.  If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected.  You should not put undue reliance on any forward-looking statements.  The forward-looking statements in this quarterly report speak only as of the date hereof.  Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.


Overview of Business

Adams Resources & Energy, Inc., a Delaware corporation organized in 1973, and its subsidiaries are primarily engaged in crude oil marketing, transportation, terminalling and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also 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” 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) beginning in the third quarter of 2022, interstate bulk transportation logistics of crude oil, condensate, fuels, oils and other petroleum products and recycling and repurposing of off-spec fuels, lubricants, crude oil and other chemicals, which includes the businesses we acquired in August 2022. See Note 6 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the businesses we acquired in August 2022, and Note 8 for further information regarding our business segments.



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Recent Developments

Phoenix and Firebird 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 $39.7 million, consisting of a cash payment of $35.8 million and 45,777 of our common shares valued at $1.4 million and contingent consideration valued at approximately $2.6 million. 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 operated 123 tractors and 216 trailers largely in the Eagle Ford basin at the time of the acquisition. 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. See Note 6 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the acquisition.

New Credit Agreement and Repurchase of KSA Shares

On October 27, 2022, subsequent to the end of the third fiscal quarter, we entered into a new credit agreement (the “New Credit Agreement”) with Cadence Bank and other lenders. The New Credit Agreement provides for a revolving credit facility that allows for borrowings up to $60.0 million principal amount from time to time and a term loan in principal amount of $25.0 million. The New Credit Agreement also provides for up to $30.0 million in letters of credit, which would reduce amounts available under the revolving credit facility by the amounts issued thereunder. The New Credit Agreement replaces our prior $60.0 million credit facility with Wells Fargo Bank, National Association. See Note 17 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the New Credit Agreement.

On October 31, 2022, we repurchased an aggregate of 1,942,433 shares of our common stock from KSA Industries, Inc., our largest stockholder at the time, and certain members of the family of the late Kenneth Stanley Adams, Jr., our founder, for an aggregate purchase price of $69.9 million. Immediately following the transaction, we had 2,452,404 shares of common stock outstanding. The purchase price was paid with the proceeds of the term loan under the New Credit Agreement, together with cash on hand at the time of the transaction. See Note 17 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding the transaction.



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Results of Operations

Crude Oil Marketing

Our crude oil marketing segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021
Change (1)
 2022 2021
Change (1)
Revenues $ 814,394  $ 543,228  50  % $ 2,524,465  $ 1,310,343  93  %
Operating earnings (2)
 5,070  4,255  19  % 20,301  19,643  3  %
Depreciation and amortization 2,008  1,611  25  % 5,690  5,050  13  %
Driver compensation 4,962  4,507  10  % 14,204  13,193  8  %
Insurance 1,679  1,813  (7  %) 5,087  5,659  (10  %)
Fuel 3,425  2,086  64  % 9,429  5,798  63  %
_______________
(1)Represents the percentage increase (decrease) from the prior year period.
(2)Operating earnings included inventory valuation losses of $5.1 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, operating earnings included inventory liquidation gains of $2.1 million and $10.3 million, respectively, as discussed further below.

Volume and price information were as follows for the periods indicated:

Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Field level purchase volumes – per day (1)
Crude oil – barrels 91,878  91,941  93,334  88,186 
Average purchase price
Crude oil – per barrel $ 89.55  $ 67.81  $ 96.84  $ 62.28 
_______________
(1)Reflects the volume purchased from third parties at the field level of operations.

Three Months Ended September 30, 2022 vs. Three Months Ended September 30, 2021. Crude oil marketing revenues increased by $271.2 million during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021, primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately $271.8 million, partially offset by lower overall crude oil volumes, which decreased revenues by approximately $0.6 million. The average crude oil price received was $67.81 during the three months ended September 30, 2021, which increased to $89.55 during the three months ended September 30, 2022. Revenues from legacy volumes are based upon the market price primarily in our Gulf Coast market area. The market price of crude oil increased through May 2022, as it did throughout 2021, before dropping through the third quarter of 2022. Many U.S. producers have been exercising capital discipline, maintaining oil production plans in spite of the crude oil price, and have been focusing capital on share buy-backs and renewables. Rig count has risen steadily through the year. Contributing to the volatility in price has been the war in Europe, as well as COVID-19 outbreaks in China, supply chain issues and labor shortages, and fears of a global economic slowdown, creating uncertainty for demand growth. OPEC+ has also mandated production decreases in hopes of keeping crude oil prices strong but only with moderate success.

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Our crude oil marketing operating earnings increased by $0.8 million during the three months ended September 30, 2022 as compared to the same period in 2021, primarily due to higher crude oil prices and margin, partially offset by higher operating expenses, lower crude oil volumes and inventory valuation changes (as shown in the table below).

Driver compensation increased by $0.5 million during the three months ended September 30, 2022 as compared to the same period in 2021, primarily due to an increase in driver pay, partially offset by lower volumes transported and a lower overall driver count in the 2022 period as compared to the same period in 2021.

Insurance costs decreased by $0.1 million during the three months ended September 30, 2022 as compared to the same period in 2021, primarily due in part to our safety performance in the prior year, and to a lower overall driver count in the 2022 period. Fuel costs increased by $1.3 million during the three months ended September 30, 2022 as compared to the same period in 2021, primarily due to higher fuel prices.

Depreciation and amortization increased by $0.4 million during the three months ended September 30, 2022 as compared to the same period in 2021, primarily due to the timing of purchases and retirements of tractors and other field equipment during 2021 and 2022.

Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021. Crude oil marketing revenues increased by $1,214.1 million during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021, primarily as a result of an increase in the market price of crude oil, which increased revenues by approximately $1,074.9 million, and higher overall crude oil volumes, which increased revenues by approximately $139.2 million. The average crude oil price received was $62.28 during the nine months ended September 30, 2021, which increased to $96.84 during the nine months ended September 30, 2022.

Our crude oil marketing operating earnings increased by $0.7 million during the nine months ended September 30, 2022, as compared to the same period in 2021, primarily due to higher crude oil prices and volumes, partially offset by inventory valuation changes (as shown in the table below), higher fuel costs and higher driver compensation.

Driver compensation increased by $1.0 million during the nine months ended September 30, 2022 as compared to the same period in 2021, primarily as a result of higher volumes transported in the 2022 period and an increase in driver pay as compared to the same period in 2021, partially offset by a lower overall driver count in the 2022 period.

Insurance costs decreased by $0.6 million during the nine months ended September 30, 2022 as compared to the same period in 2021, primarily due in part to our safety performance in the prior year, and to a lower overall driver count in the 2022 period. Fuel costs increased by $3.6 million during the nine months ended September 30, 2022 as compared to the same period in 2021, consistent with higher fuel prices.

Depreciation and amortization expense increased by $0.6 million during the nine months ended September 30, 2022 as compared to the same period in 2021, primarily due to the timing of purchases and retirements of tractors and other field equipment during 2021 and 2022.

Field Level Operating Earnings (Non-GAAP Financial Measure). Inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations are two factors affecting comparative crude oil marketing segment operating earnings (losses), of which inventory valuations is the most significant. As a purchaser and shipper of crude oil, we hold inventory in storage tanks and third-party pipelines. During periods of increasing crude oil prices, we recognize inventory liquidation gains while during periods of falling prices, we recognize inventory liquidation and valuation losses.


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Crude oil marketing operating earnings (losses) can be affected by the valuations of our forward month commodity contracts (derivative instruments), if material. These non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date. We generally enter into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level). The valuation of derivative instruments at period end requires the recognition of non-cash “mark-to-market” gains and losses.

The impact of inventory liquidations and valuations and derivative valuations on our crude oil marketing segment operating earnings is summarized in the following reconciliation of our non-GAAP financial measure and provides management a measure of the business unit’s performance without the impact of inventory valuation and liquidation adjustments for the periods indicated (in thousands):