Adams Resources & Energy, Inc.
Q3 2017 Earnings Call Transcript

Published: 11 Nov 2017

[Executives:]

Josh Anders - Chief Financial Officer Geoff Griffith - President, GulfMark Energy

[Operator:]

Good morning, ladies and gentlemen and welcome to the Adams Resources & Energy Third Quarter 2017 Earnings Call. During today’s presentation, all parties will be in a listen-only mode. This is a pre-recorded conference call and if you have further questions, please feel free to contact Josh Anders, Chief Financial Officer of Adams at [e-mail] or 281-974-9442. I would now like to turn the call over to Josh Anders, Chief Financial Officer. Please go ahead.

[Josh Anders:]

Thank you, operator. Good morning, everyone and welcome to our conference call to discuss Adams Resources & Energy’s third quarter 2017 results. I am joined on the call today by Geoff Griffith, the President of our subsidiary, GulfMark Energy. We would like to remind everyone that we may make comments on this call that could be construed as forward-looking statements as defined by the Securities and Exchange Commission. Future results are subject to numerous contingencies, many of which are outside of our control. Any forward-looking statements we make are qualified by the risk factors and other information set forth in our Form 10-K for the year ended December 31, 2016 and our most recent Form 10-Q filed with the SEC and available on Adams Resources & Energy’s website at www.adamsresources.com. Although management believes that expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. We will refer to some non-GAAP financial measures, which help facilitate comparisons across periods and with peers. Non-GAAP financial measures used by the company maybe calculated differently from and therefore may not be comparable to, similar titled measures used by other companies. These non-GAAP financial measures should be considered along with, but not as alternatives to, the operating performance as prescribed by GAAP. For any non-GAAP measures we use, a reconciliation to the nearest corresponding GAAP measure can be found in our earnings release available on our website. Now, let’s get started. During the third quarter of 2017, we experienced downtime related to Hurricane Harvey across our Gulf Coast operations that Geoff will expand on during his comments. At Service Transport Company, our wholly owned subsidiary we have seen an increase in demand as rail and water transportation modes need longer lead times to get reestablished after a major disruption like Hurricane Harvey. In addition, Service Transport is strategically located to capitalize on the refining activity that is taking place along the Gulf Coast and we are looking forward to improving the financial results of this segment in the coming quarters. During the quarter, we had several one-time charges including first of all, the impairment of our most recent medical investment, VestaCare; secondly, a write-down of our upstream subsidiary, Adams Resources Exploration Corporation, to reflect the all-in cost of the upstream bankruptcy process as we expect to wrap up the Chapter 11 proceeding by the end of 2017; and lastly, a charge from our voluntary early retirement program. The voluntary early retirement program is expected to save the company approximately $1 million during 2018, including the impact of positions that we are backfilling. We faced several challenges during the third quarter of 2017, but we are encouraged by what we are seeing early in the fourth quarter. I will now turn the call over to Geoff Griffith, President of GulfMark Energy.

[Geoff Griffith:]

Results in the third quarter were punctuated by issues caused from Hurricane Harvey. We were faced with producer shut-ins, followed by an inability to deliver to normal unloading sites due to refinery shut-ins and a closure of the Inter Coastal Waterway west of the Colorado River. This left crude supplies stranded at three different barge locations and resulted in unusually high inventory levels at the end of the quarter. As debris was cleared from the waterway at the end of September, sales resumed and delivery schedules returned to normal. We believe that cost associated with reduced producer volumes, increased mileage and remarketing cost the company in excess of $450,000 in the third quarter. Volumes in our Gulf Coast operation are expected to improve significantly over the next few months as producers bring on wells that have been drilled, but not completed and pushed to complete 2017 drilling projects before the end of the year. October volumes are expected to be in excess of 73,000 barrels a day and we believe that this number will improve further before the end of the four quarter. And with that, I will turn the call over to Josh Anders to cover the financial results and closing comments.

[Josh Anders:]

Thank you, Geoff. We reported a net loss of $3 million or $0.72 per common share for the third quarter of 2017 as compared to a net loss of $2.2 million, or $0.51 per common share for the third quarter of 2016. The increased loss is primarily due to downtime related to Hurricane Harvey and several one-time charges during the quarter. On an adjusted basis, our net loss was approximately $0.2 million or $0.04 per common share for the third quarter of 2017 as compared to a net loss of $1.3 million or $0.31 per common share for the third quarter of 2016. The third quarter of 2017 includes a $2.5 million impairment of our investment in VestaCare as it is off to a much slower start than anticipated. This marks the last medical-related investment we have held on our balance sheet and we currently have no intentions of making additional investments in the medical industry. The quarter also includes a $1.9 million charge related to our upstream subsidiary as we updated our estimates on the total cost of finishing the Chapter 11 process. We expect to have a confirmed plan for Adams Resources Exploration Corporation in Delaware court by the end of 2017. The company took a $1.4 million charge for a voluntary early retirement program during the third quarter of 2017. The majority of the voluntary early retirement program participants retired effective September 30, 2017. As mentioned earlier, the company expects savings of approximately $1 million per year starting in 2018 as a result of this initiative. During the third quarter of 2017, we recorded approximately $2.1 million of capital and paid dividends of $0.22 per share, or $900,000. The majority of our capital during the quarter was related to new tractors for our GulfMark division. We entered into a capital lease for $1.8 million on 15 new tractors for GulfMark. We will continue to lease operational equipment as long as rates are competitive. Our liquidity was $159 million at the end of the third quarter of 2017 consisting of approximately $99 million of cash and no letters of credit outstanding on our $60 million letter of credit facility. We continue to have no short-term or long-term debt which provides us with a lot of options as we continue to analyze opportunities. Our cash balance was down approximately $5 million from the second quarter of 2017’s level of $104 million, but our crude oil inventory was up approximately 25% to 435,000 barrels in storage from 347,800 barrels at the end of second quarter of 2017. This rise in inventory was due to the Hurricane Harvey disruptions that Geoff discussed earlier. In closing, I would like to recognize and thank Jim Brown for his dedication to Service Transport Company. He has been with our organization for approximately 33 years and is retiring this December. On October 30, 2017, we announced that Kevin Roycraft will be joining us as the President of Service Transport Company. We have a lot of work to do to take advantage of Service Transport’s position in a marketplace that is very attractive thanks to low natural gas prices in the United States and major refining investments that are taking place across the Gulf Coast. With Service Transport well-positioned and GulfMark poised to take advantage of increased activity levels in our core operating basins as Geoff discussed, we look forward to the coming quarters and years ahead of us. We will continue to analyze opportunities on the business development front, but will remained disciplined. Thank you to our employees and drivers for your resolve over the past several weeks as we recovered from Hurricane Harvey. We appreciate your time today and have a great weekend.

[Operator:]

And this concludes Adams Resources & Energy’s third quarter conference call. Thank you for joining us today.