Vertex Energy, Inc. (NASDAQ:VTNR) Q2 2024 Earnings Call Transcript

Vertex Energy, Inc. (NASDAQ:VTNR) Q2 2024 Earnings Call Transcript August 8, 2024

Vertex Energy, Inc. misses on earnings expectations. Reported EPS is $-0.57503 EPS, expectations were $-0.1.

Operator: Good morning. I would like to welcome everyone to Vertex Energy’s Second Quarter 2024 Conference Call. I will now turn the call over to Chris Delange, IR Coordinator.

Chris Delange : Thank you, Operator. Good morning, everyone, and welcome to Vertex Energy’s second quarter 2024 conference call. On the call today are Chairman and CEO Ben Cowart, Chief Financial Officer Chris Carlson, Interim Chief Operating Officer and Chief Commercial Officer Doug Haugh, and Chief Strategy Officer Alvaro Ruiz. I want to remind you that management’s commentary on today’s conference call may include forward-looking statements which, by their nature, are uncertain and outside of the company’s control. Although these forward-looking statements are based on management’s current expectations and beliefs, actual results may differ materially. For a discussion of some of the risk factors that could cause actual results to differ, please refer to the risk factors section of Vertex Energy’s latest annual and quarterly filings with the SEC.

Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call in the press release issued today. Today’s call will begin with remarks from Ben Cowart, followed by an operational review from Doug Haugh, financial review from Chris Carlson, and closing remarks by Ben Cowart. With that, I’ll turn the call over to Ben.

Ben Cowart : Thank you, Chris. Good morning to those joining us. On the call today, the team and I plan to update you on the financial and operating results for the second quarter 2024, as well as update you on the progress around the hydrocracker conversion from renewable feedstock to conventional, and outline some strategic steps that we’ve taken to help Vertex navigate the current near-term landscape. The second quarter saw a difficult macroeconomic environment where crack spreads fell by 28% compared to the first quarter. And despite doing a lot of good things operationally, the lower-pricing environment negatively impacted our financial performance. We maintained our commitment to safe and reliable operations. We saw absolute operating expenses decrease by 6% quarter-over-quarter and 12% year-over-year, which shows our continued commitment to reducing costs, expanding margins in areas that we can control, and operating efficiently.

Additionally, we continue to manage capital expenditures, and we’re once again below our guidance. Over the past few years, we’ve made material advancements and strategic decisions to grow Vertex. For the past two years, we have operated safely and efficiently while investing capital into upgrading the mobile refinery. We built in flexibility with our capital spend to allow us to redeploy our renewable equipment back into conventional production if our strategy required adjustments. On the first quarter conference call, we discussed a strategic decision to pause our renewable diesel business and pivot to producing conventional fuels from the hydrocracker unit. We were in the process of reconfiguring the unit back to conventional feedstock in conjunction with the planned third quarter maintenance turnaround.

Q&A Session

As we look to ensure that any near-term liquidity constraints during our transitional period are addressed, we continue to work with our lenders. In June and July, we secured an additional $15 million and $20 million in loans as well as modified certain terms and conditions of our current loan agreement. We also named Seth Bullock as our Chief Restructuring Officer. Seth has significant experience in the industry and understands Vertex’s operational and capability very well. He was brought in to assist Vertex in managing through a difficult macro environment and providing additional expertise in liquidity management and performance improvement. I want to thank all of our employees for the good work they have accomplished thus far in 2024. As Doug will note shortly, our safety track record is commendable and we have more work ahead of us to convert our hydrocracker to conventional feedstock, which we want to do safely because our people are our most valuable asset.

With that, I’ll now hand the call over to Doug.

Doug Haugh: Good morning, everyone. Unfortunately, the Mobile site had its first OSHA recordable injury in over two years during the second quarter of 2024. While this contractor incident was minor, it highlighted to all of us that there are always improvements to make and that our commitment to safety must always remain top of mind, and Mobile saw zero process safety events for the quarter, continuing its streak of over two years with outstanding HSE performance at the site. I want to commend our employees at every location for continually prioritizing the safety-first mentality of our entire organization. The effort and care for each other seen across the entire business is a testament to the dedication of both employees and contract partners working within our facilities.

Our legacy operations overall had a good quarter with Marrero performing in line with expectations. Our team at the Mobile site demonstrated strong operational performance of the conventional facility during the quarter with average throughput volumes of approximately 68,000 barrels per day for capacity utilization 90 percent. A higher capacity utilization rate was possible due to the team getting the crew unit back from its planned decoat ahead of schedule. Total OpEx for the second quarter was down 6% compared to the first quarter and down 12% year-over-year. This reflects our continuous emphasis on operational excellence, including cost savings and efficiencies that will help us lower our overall costs. Given the deteriorating crack spreads, we saw our conventional field’s gross margin per barrel during the quarter decrease materially to $5.67.

Compared to the $12.63 we saw in the first quarter, our finished products such as gasoline, diesel, and jet fuel accounted for 64.4% of our total product yield during the second quarter of 2024, slightly higher than in the first quarter. In the second quarter we had strong throughput volumes, but in the third quarter we have a planned turnaround scheduled in conjunction with the hydrocracker conversion that is currently in progress. This will reduce our overall throughput for Q3, but we do expect to return to our typical run rates for quarter four. Now turning to our renewable fuels business, Vertex’s renewable diesel plant operated well. We finished running down our inventory of feedstock. Our renewable throughput volumes averaged 3,092 barrels per day, and as of the end of June we had ceased RV production and are on schedule for the conversion of our hydrocracker back to conventional service.

This focus on the conventional business seeks to capture available margins in a more established market with an on-stream target of the fourth quarter 2024. Our commercial team is supporting our strategic pivot and continues to work closely with customers and suppliers, all of whom have been great partners through this process. We’re appreciative of their collaboration and support of this effort. As I mentioned on our last call, we tendered a new offtake agreement for jet this spring and commenced supply of our new customer on April 1st. This transition has been well managed by the operations and commercial teams, and this is an important milestone for Vertex. This is the first of our finished product contracts to roll off our initial offtake agreements inherited upon the purchase of the refinery.

I’d like to remind you we have additional agreements approaching expiry over the next year, and we’ll be following a similar process with those volumes as we did with the jet volumes and expect to deliver increased value to Vertex versus our existing contracts. I’ll now turn the call over to Chris for a review of the company financial results and additional detail regarding our financial and operating outlook for the third quarter 2024.

Chris Carlson: Thank you, Doug, and welcome to those joining us on the call today. Our focus continues to be on managing our balance sheet and protecting liquidity. As Ben discussed, we entered into additional term loans for a total of $35 million to help us manage any near-term softness in the macroeconomic pricing environment and to help us through our transition from RD to conventional production. We continue to believe that by stopping losses associated with the renewable diesel production and adding available margin through upgrading VGO to a higher margin conventional product, we will be able to generate additional cash flow, allowing us greater financial flexibility and improving our balance sheet. Turning now to our financial results, Vertex reported net loss attributable to the company of $53.8 million for the second quarter of 2024.

This compares to a net loss of $81.4 million in the second quarter of 2023. We saw a decrease in our total adjusted EBITDA to a loss of $22.4 million in the second quarter, driven by lower pricing. Total capital expenditures for the second quarter of 2024 were $15 million, 29% below our prior guidance, reflecting a deliberate preservation of capital achieved via a deferral of certain discretionary capital expenditures. This primarily includes a realignment of planned capital expenses for the renewables business. Turning to the balance sheet, as of June 30, 2024, the company had total cash and equivalents, including restricted cash of $18.9 million, which does not include the additional $20 million received in July. The total net debt outstanding was $303.8 million at the end of the second quarter of 2024, including lease obligations of $67.5 million.

Looking to the third quarter of 2024, we have a planned turnaround schedule in conjunction with the continued work to convert the hydrocracker back to conventional production. This will result in a decrease in our overall throughput for the quarter, which we forecast will improve materially in the fourth quarter. For Q3, we anticipate total conventional throughput volumes at Mobile to be between 55,000 and 60,000 barrels per day. Our expected yield of conventional products is expected to consist of between 64% to 68% high-value finished products, such as gasoline, diesel, and jet fuel, with the balance in intermediate and other products, such as VGO. Our anticipated OpEx per barrel is also expected to rise in conjunction with the lower throughput, but we will continue to work on cost reductions on an absolute basis.

For the third quarter, the projected per barrel range is between $5.52 per barrel and $6.02 for the quarter. We anticipate total capital expenditures for the third quarter to be between $15 million to $20 million as planned, which includes a portion of the $10 million conversion cost. With that, I will turn it over to Ben for some closing remarks.

Ben Cowart : Thank you, Chris. Our team is doing a great job of keeping our operations safe, minimizing risk, and delivering incremental results towards our strategic goals. As we navigate the third quarter of 2024, our focus is on managing cash flow during this transitional period. Given the persistent market volatility and crude in product pricing, which is impacted by a variety of global factors, we will continue to pursue strategic opportunities and financing pathways that support liquidity needs over the near term. Seth will provide valuable insight and guidance to help us through this process. We’ve done a lot of work proactively restructuring the business to reduce cost and capital and set up systems to manage and monitor cash flow effectively.

And we’ll continue these efforts on an ongoing basis. We have been adamant that our strategic priorities are to increase our cash position, reduce our operating costs, and improve margins. While we are optimistic about the future, we can’t control pricing and will continue to evaluate all options to help best position Vertex to navigate the current environment and try to maximize profitability for the remainder of 2024 and into 2025. Thank you for joining us on the call today.

Operator: This concludes the Vertex Energy second quarter 2024 conference call. Thank you for joining. You may now disconnect.

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