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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 September 30, 2023

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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.10 Par ValueAENYSE 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 2,546,441 shares of Common Stock were outstanding at November 1, 2023.


Table of Contents


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

Page Number



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,
20232022
ASSETS
Current assets:
Cash and cash equivalents$16,313 $20,532 
Restricted cash8,575 10,535 
Accounts receivable, net of allowance for doubtful
accounts of $117 and $88, respectively
219,263 189,039 
Inventory27,650 26,919 
Derivative assets5  
Income tax receivable510  
Prepayments and other current assets2,470 3,118 
Total current assets274,786 250,143 
Property and equipment, net111,042 106,425 
Operating lease right-of-use assets, net6,212 7,720 
Intangible assets, net8,407 9,745 
Goodwill6,673 6,428 
Other assets3,475 3,698 
Total assets$410,595 $384,159 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$226,613 $204,391 
Accounts payable – related party 31 
Derivative liabilities 330 
Current portion of finance lease obligations6,863 4,382 
Current portion of operating lease liabilities2,769 2,712 
Current portion of long-term debt2,500  
Other current liabilities13,856 19,214 
Total current liabilities252,601 231,060 
Other long-term liabilities:
Long-term debt20,000 24,375 
Asset retirement obligations2,499 2,459 
Finance lease obligations22,292 12,085 
Operating lease liabilities3,446 5,007 
Deferred taxes and other liabilities15,696 15,996 
Total liabilities316,534 290,982 
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, 2,546,441 and 2,495,484 shares outstanding, respectively
253 248 
Contributed capital21,653 19,965 
Retained earnings72,155 72,964 
Total shareholders’ equity94,061 93,177 
Total liabilities and shareholders’ equity$410,595 $384,159 
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 EndedNine Months Ended
September 30,September 30,
2023202220232022
Revenues:
Marketing$719,925 $814,394 $1,913,673 $2,524,465 
Transportation24,206 29,830 75,103 86,054 
Pipeline and storage59  308  
Logistics and repurposing16,424 8,677 46,458 8,677 
Total revenues760,614 852,901 2,035,542 2,619,196 
Costs and expenses:
Marketing710,169 807,316 1,894,416 2,498,474 
Transportation19,642 23,732 62,315 68,271 
Pipeline and storage659 640 2,350 1,799 
Logistics and repurposing15,121 7,582 41,448 7,582 
General and administrative4,162 4,630 10,649 12,860 
Depreciation and amortization6,936 6,008 21,289 16,109 
Total costs and expenses756,689 849,908 2,032,467 2,605,095 
Operating earnings3,925 2,993 3,075 14,101 
Other income (expense):
Interest and other income119 338 893 665 
Interest expense(1,027)(119)(2,525)(369)
Total other (expense) income, net(908)219 (1,632)296 
Earnings before income taxes3,017 3,212 1,443 14,397 
Income tax (provision) benefit(759)(1,022)(357)(3,641)
Net earnings$2,258 $2,190 $1,086 $10,756 
Earnings per share:
Basic net earnings per common share$0.89 $0.50 $0.43 $2.46 
Diluted net earnings per common share$0.88 $0.50 $0.42 $2.44 
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,
20232022
Operating activities:
Net earnings$1,086 $10,756 
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization21,289 16,109 
Gains on sales of property(1,429)(1,709)
Provision for doubtful accounts29 (20)
Stock-based compensation expense1,044 712 
Change in contingent consideration liability(2,566) 
Deferred income taxes3 (1,761)
Net change in fair value contracts(335)(1,884)
Changes in assets and liabilities:
Accounts receivable(30,253)(56,060)
Accounts receivable/payable, affiliates(31)17 
Inventories(731)(10,259)
Income tax receivable(510)6,424 
Prepayments and other current assets648 468 
Accounts payable22,239 46,925 
Accrued liabilities(2,709)6,489 
Other64 (375)
Net cash provided by operating activities7,838 15,832 
Investing activities:
Property and equipment additions(8,917)(6,797)
Acquisition of Firebird and Phoenix, net of cash acquired (33,590)
Proceeds from property sales3,078 2,209 
Insurance and state collateral refunds 331 
Net cash used in investing activities(5,839)(37,847)
Financing activities:
Borrowings under Credit Agreement76,000 45,000 
Repayments under Credit Agreement(77,875)(30,000)
Principal repayments of finance lease obligations(4,944)(3,491)
Net proceeds from sale of equity549 283 
Dividends paid on common stock(1,908)(3,180)
Net cash (used in) provided by financing activities(8,178)8,612 
Increase (Decrease) in cash and cash equivalents, including restricted cash(6,179)(13,403)
Cash and cash equivalents, including restricted cash, at beginning of period31,067 107,317 
Cash and cash equivalents, including restricted cash, at end of period$24,888 $93,914 


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
CommonContributedRetainedShareholders’
StockCapitalEarningsEquity
Balance, January 1, 2023
$248 $19,965 $72,964 $93,177 
Net loss— — (1,999)(1,999)
Stock-based compensation expense— 283 — 283 
Vesting of restricted awards3 (3)—  
Cancellation of shares withheld to cover
taxes upon vesting of restricted awards— (222)— (222)
Shares sold under at-the-market
offering program1 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 
Net earnings— — 827 827 
Stock-based compensation expense— 372 — 372 
Dividends declared:
Common stock, $0.24/share
— — (608)(608)
Awards under LTIP, $0.24/share
— — (25)(25)
Balance, June 30, 2023
252 20,943 70,526 91,721 
Net earnings— — 2,258 2,258 
Stock-based compensation expense— 389 — 389 
Vesting of restricted awards1 321 — 322 
Dividends declared:
Common stock, $0.24/share
— — (609)(609)
Awards under LTIP, $0.24/share
— — (20)(20)
Balance, September 30, 2023
$253 $21,653 $72,155 $94,061 



















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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)

Total
CommonContributedRetainedShareholders’
StockCapitalEarningsEquity
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 awards2 (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 under at-the-market
offering program1 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 acquisition2 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 

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 eighteen 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 and nine months ended September 30, 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):

September 30,December 31,
20232022
Cash and cash equivalents$16,313 $20,532 
Restricted cash:
Collateral for outstanding letters of credit (1)
357 892 
Captive insurance subsidiary (2)
8,218 9,643 
Total cash, cash equivalents and restricted cash shown in the
unaudited condensed consolidated statements of cash flows$24,888 $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 program14,680 
Balance, March 31, 2023
2,534,685 
No activity 
Balance, June 30, 2023
2,534,685 
Vesting of shares issued in acquisition10,172 
Vesting of restricted stock unit awards (see Note 13)
1,584 
Balance, September 30, 2023
2,546,441 

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).
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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The calculation of basic and diluted earnings per share was as follows for the periods indicated (in thousands, except per share data):

Three Months EndedNine Months Ended
September 30,September 30,
2023202220232022
Earnings per share — numerator:
Net earnings$2,258 $2,190 $1,086 $10,756 
Denominator:
Basic weighted average number of shares outstanding2,541 4,387 2,531 4,373 
Basic net earnings per share$0.89 $0.50 $0.43 $2.46 
Diluted earnings per share:
Diluted weighted average number of shares outstanding:
Common shares2,541 4,387 2,531 4,373 
Restricted stock unit awards15 20 15 21 
Performance share unit awards (1)
14 13 18 12 
Total diluted shares2,570 4,420 2,564 4,406 
Diluted net earnings per share$0.88 $0.50 $0.42 $2.44 
_______________
(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, 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.

In accordance with U.S. GAAP for interim reporting, we have historically estimated our full-year effective tax rate and applied this rate to ordinary income or loss for the reporting period. We have determined that since small changes in estimated ordinary income would result in significant changes in the estimated annual effective tax rate, this historical method would not provide reliable results for the three months ended September 30, 2023. Therefore, a discrete year-to-date method of reporting was used for the three months ended September 30, 2023. We will continue to evaluate income tax estimates under the historical method in subsequent quarters and employ a discrete effective tax rate method if warranted.

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 costs and 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 EndedNine Months Ended
September 30,September 30,
2023202220232022
Crude Oil Marketing:
Revenue from contracts with customers:
Goods transferred at a point in time$710,010 $802,707 $1,878,735 $2,491,066 
Services transferred over time427  763  
Total revenues from contracts with customers710,437 802,707 1,879,498 2,491,066 
Other (1)
9,488 11,687 34,175 33,399 
Total crude oil marketing revenue$719,925 $814,394 $1,913,673 $2,524,465 
Transportation:
Revenue from contracts with customers:
Goods transferred at a point in time$ $ $ $ 
Services transferred over time24,206 29,830 75,103 86,054 
Total revenues from contracts with customers24,206 29,830 75,103 86,054 
Other    
Total transportation revenue$24,206 $29,830 $75,103 $86,054 
Pipeline and storage: (2)
Revenue from contracts with customers:
Goods transferred at a point in time$ $ $ $ 
Services transferred over time59  308  
Total revenues from contracts with customers59  308  
Other    
Total pipeline and storage revenue$59 $ $308 $ 
Logistics and repurposing:
Revenue from contracts with customers:
Goods transferred at a point in time$8,545 $4,178 $25,708 $4,178 
Services transferred over time7,879 4,499 20,750 4,499 
Total revenues from contracts with customers16,424 8,677 46,458 8,677 
Other    
Total logistics and repurposing revenue$16,424 $8,677 $46,458 $8,677 
Subtotal:
Total revenues from contracts with customers$751,126 $841,214 $2,001,367 $2,585,797 
Total other (1)
9,488 11,687 34,175 33,399 
Total consolidated revenues$760,614 $852,901 $2,035,542 $2,619,196 
_______________
(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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(2)All pipeline and storage revenue during the three and nine months ended September 30, 2022 and for the period from January 1, 2023 to May 31, 2023 was from an affiliated shipper, GulfMark Energy, Inc. (“GulfMark”), our subsidiary, and was eliminated in consolidation. During June 2023, we began earning revenue from an unaffiliated shipper.

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 EndedNine Months Ended
September 30,September 30,
2023202220232022
Revenue gross-up$257,965 $430,244 $785,636 $1,156,711 


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,
20232022
Insurance premiums$302 $1,220 
Rents, licenses and other2,168 1,898 
Total prepayments and other current assets$2,470 $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 LifeSeptember 30,December 31,
in Years20232022
Tractors and trailers
56
$123,694 $128,223 
Field equipment
25
24,820 24,676 
Finance lease ROU assets (1)
36
40,023 25,106 
Pipeline and related facilities
2025
20,397 20,362 
Linefill and base gas (2)
N/A3,922 3,922 
Buildings
539
16,189 16,163 
Office equipment
25
2,964 2,937 
LandN/A4,163 2,309 
Construction in progressN/A4,985 3,629 
Total241,157 227,327 
Less accumulated depreciation and amortization(130,115)(120,902)
Property and equipment, net$111,042 $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 $12.5 million and $9.9 million at September 30, 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 EndedNine Months Ended
September 30,September 30,
2023202220232022
Depreciation and amortization, excluding amounts under finance leases$4,523 $4,392 $14,260 $11,644 
Amortization of property and equipment under finance leases1,983 1,323 5,691 3,792 
Amortization of intangible assets430 293 1,338 673 
Total depreciation and amortization$6,936 $6,008 $21,289 $16,109 



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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 was 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 exceeded 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 was subject to revision as acquisition-date fair value analyses were completed and if additional information about facts and circumstances that existed at the acquisition date became available. During the second quarter of 2023, we revised the fair value of certain tractors and trailers, resulting in a decrease in the amount allocated to property and equipment of $0.2 million and with a corresponding increase in goodwill. No other changes to the purchase price allocation occurred during the first half of 2023. The purchase price consideration, as well as the estimated fair values of the assets acquired and liabilities assumed, was finalized during the second quarter of 2023.


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

Assets acquired:
Cash and cash equivalents$2,203 
Accounts receivable4,653 
Inventory643 
Other current assets137 
Property and equipment24,809 
Intangible assets7,607 
Goodwill6,673 
Other assets458 
Total assets acquired$47,183 
Liabilities assumed:
Accounts payable and other accrued liabilities$(1,696)
Deferred tax liabilities(6,207)
Total liabilities assumed$(7,903)
Net assets acquired$39,280 

During the second quarter of 2023, based upon a review of the contingent consideration calculation terms, we determined that no payment would be made to the Sellers, and as such, we adjusted our accrual of $2.6 million that had been recorded as part of the purchase price allocation. The reversal of the accrual for the contingent consideration is included in general and administrative expense on our unaudited condensed consolidated statements of operations.

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, except per share amounts).

Three Months EndedNine Months Ended
September 30,September 30,
20222022
Revenues$860,771 $2,663,447 
Net earnings2,295 12,867 
Basic net earnings per common share$0.52 $2.93 
Diluted net earnings per common share$0.52 $2.91 


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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,
20232022
Insurance collateral deposits$503 $463 
State collateral deposits23 23 
Materials and supplies1,281 1,257 
Debt issuance costs1,343 1,595 
Other325 360 
Total other assets$3,475 $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

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.

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

Reporting Segments
Crude oil marketingTrans-portationPipeline and storage
Logistics and repurposing (1)
OtherTotal
Three Months Ended September 30, 2023
Segment revenues (2)
$719,925 $24,333 $770 $16,457 $ $761,485 
Less: Intersegment revenues (2)
 (127)(711)(33) (871)
Revenues$719,925 $24,206 $59 $16,424 $ $760,614 
Segment operating earnings (losses) (3)
7,664 1,558 (866)(269) 8,087 
Depreciation and amortization2,092 3,006 266 1,572  6,936 
Property and equipment additions (4)
140 1,416 182 1,271  3,009 
Three Months Ended September 30, 2022
Segment revenues (2)
$814,394 $29,896 $852 $8,677 $ $853,819 
Less: Intersegment revenues (2)
 (66)(852)  (918)
Revenues$814,394 $29,830 $ $8,677 $ $852,901 
Segment operating earnings (losses) (3)
5,070 3,307 (909)155  7,623 
Depreciation and amortization2,008 2,791 269 940  6,008 
Property and equipment additions (4)
343 722 817 132  2,014 
Nine Months Ended September 30, 2023
Segment revenues (2)
$1,913,673 $75,439 $2,473 $48,984 $ $2,040,569 
Less: Intersegment revenues (2)
 (336)(2,165)(2,526) (5,027)
Revenues$1,913,673 $75,103 $308 $46,458 $ $2,035,542 
Segment operating earnings (losses) (3)
12,922 3,515 (2,846)133  13,724 
Depreciation and amortization6,335 9,273 804 4,877  21,289 
Property and equipment additions (4) (5)
809 2,754 1,423 3,819 112 8,917 
Nine Months Ended September 30, 2022
Segment revenues (2)
$2,524,465 $86,207 $2,912 $8,677 $ $2,622,261 
Less: Intersegment revenues (2)
 (153)(2,912)  (3,065)
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 amortization5,690 8,671 808 940  16,109 
Property and equipment additions (4)
4,351 1,416 890 132 8 6,797 
_______________
(1)On August 12, 2022, we acquired a transportation logistics and recycling and repurposing business, resulting in a new operating segment.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 (losses) included inventory liquidation gains of $4.9 million and inventory valuation losses $5.1 million for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, our crude oil marketing segment’s operating (losses) earnings included inventory liquidation gains of $2.9 million and $2.1 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, 2023 and 2022. See Note 15 for further information.
(5)Amounts included in property and equipment additions for Other are additions for computer or other office equipment and a company vehicle 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 EndedNine Months Ended
September 30,September 30,
2023202220232022
Segment operating earnings$8,087 $7,623 $13,724 $26,961 
General and administrative(4,162)(4,630)(10,649)(12,860)
Operating earnings3,925 2,993 3,075 14,101 
Interest and other income119 338 893 665 
Interest expense(1,027)(119)(2,525)(369)
Earnings before income taxes$3,017 $3,212 $1,443 $14,397 

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

September 30,December 31,
20232022
Reporting segment:
Crude oil marketing$251,449 $215,813 
Transportation59,808 60,405 
Pipeline and storage25,123 25,815 
Logistics and repurposing44,264 45,307 
Cash and other (1)
29,951 36,819 
Total assets$410,595 $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 EndedNine Months Ended
September 30,September 30,
2023202220232022
KSA and affiliate billings to us$ $1 $ $7 
Billings to KSA and affiliates 5 9 15 
Rentals paid to an affiliate of KSA 136 232 388 
Payments to an affiliate of KSA for purchase of
  vehicles (1)
  157 78 
Rentals paid to affiliates of Scott Bosard125  405  
Crude oil purchases from affiliate (2)
9,362 1,403 13,940 1,403 
_______________
(1)Amounts paid to West Point Buick GMC were for the purchase of three and two pickup trucks during the nine months ended September 30, 2023 and 2022, respectively.
(2)From time to time, GulfMark purchases crude oil from Endeavor Natural Gas, L.P., of which one of our Board members is the Managing Partner.

Affiliate transactions included 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. In addition, we purchase pickup trucks from West Point Buick GMC, an affiliate of KSA. 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, when he retired. As of May 31, 2023, KSA and its affiliates are no longer related parties. The table above consequently does not reflect any payments to or from KSA after that date.

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):

September 30,December 31,
20232022
Accrual for payroll, benefits and bonuses$5,489 $6,435 
Accrued automobile and workers’ compensation claims5,989 5,579 
Contingent consideration for acquisition (see Note 6)
 2,566 
Accrued medical claims505 1,007 
Accrued taxes620 2,208 
Other1,253 1,419 
Total other current liabilities $13,856 $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.

Pursuant to the terms of the 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 Credit Agreement and subject to certain exclusions and qualifications described therein.

On August 2, 2023, we entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement. The Amendment (i) clarifies our ability to exclude crude oil inventory valuation losses (and, to the extent included in our consolidated net income, inventory liquidation gains) from the calculation of Consolidated EBITDA for purposes of the related financial covenants, (ii) provides for the exclusion of unusual and non-recurring losses and expenses from the calculation of Consolidated EBITDA, not to exceed 10.0 percent of Consolidated EBITDA for the period, and (iii) amends the definition of Consolidated Funded Indebtedness to include letters of credit and banker’s acceptances only to the extent such letters of credit or banker’s acceptances have been drawn, for purposes of the Consolidated Total Leverage Ratio calculation in the Credit Agreement. The Amendment applies to our fiscal period ending June 30, 2023 and thereafter.

At September 30, 2023, we had $22.5 million outstanding under the Term Loan at a weighted average interest rate of 7.66 percent, and $20.4 million letters of credit outstanding at a fee of 2.25 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 September 30, 2023 for the next five years, and in total thereafter (in thousands):


Remainder of 2023$625 
20242,500 
20252,500 
20262,500 
202714,375 
Total debt maturities$22,500 

At September 30, 2023, we were in compliance with all covenants under the Credit Agreement.


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ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Derivative Instruments and Fair Value Measurements

Derivative Instruments