Yahoo Finance Vertex Energy, Inc. (NASDAQ:VTNR) Q3 2023 Earnings Call Transcript
Vertex Energy, Inc. (NASDAQ:VTNR) Q3 2023 Earnings Call Transcript November 7, 2023
Vertex Energy, Inc. beats earnings expectations. Reported EPS is $0.17, expectations were $0.08.
Operator: Thank you for holding, and welcome everyone to the Vertex Energy, Inc. Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'll now turn the call over to John Ragozzino, Investor Relations. Mr. Ragozzino. Please go ahead.
John Ragozzino : Thank you. Good morning and welcome to Vertex Energy's third quarter 2023 results conference call. On the call today are Chairman and CEO, Ben Cowart; Chief Financial Officer, Chris Carlson; Chief Operating Officer, James Rhame; Chief Strategy Officer, Alvaro Ruiz; and Chief Commercial Officer, Doug Haugh. I want to remind you that management's commentary and responses to questions 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 today and the press release issued today. Today's call will begin with remarks from Ben Cowart; followed by an operational review from James Rhame; financial review from Chris Carlson; and a review of our commercial strategy by Doug Haugh. At the conclusion of these prepared remarks, we will open the line for questions. With that, I'll turn the call over to Ben.
Ben Cowart : Thank you, John and good morning to those joining us on the call today. We are pleased to report a favorable third quarter for 2023. During the quarter commodity prices increased relative to the prior quarter. Our operations team was able to capitalize on this margin opportunity by running sustained elevated throughput volumes and driving improved yields towards high-value finished products resulting in adjusted EBITDA of $51.5 million for the quarter. Our renewable diesel facility has demonstrated best-in-class yield rates at around 98% while supporting continued operational flexibility allowing us to adjust as needed to qualify a variety of alternative organic feedstock blends. We believe the renewable diesel facility has a proven capital efficient energy transition asset that offers significant value in the face of increasing regulatory shifts towards low carbon energy solutions most notably in California.
As these emerging markets transition over the next year we will continue to focus on our key priorities. Number one, completion of Phase two of our renewable diesel project including the expansion of hydrogen production capabilities. And number two continuing to improve on our balance sheet. As it relates to the balance sheet and as previously announced, we have formally engaged Bank of America to act as our financial advisor to enhance our renewable fuels and sustainable products growth strategy and evaluate potential strategic transactions, which could rapidly accelerate our balance sheet improvement efforts. We are pleased with the support they have provided thus far and we look forward to providing potential updates as they develop. As the team will share with you today, our results for third quarter related to safety operations and financial performance demonstrate the team's ability to effectively manage the business in response to ever changing market conditions, while maintaining focus on the ability to generate long-term value for our shareholders.
With that, I would now like to hand the call over to James Rhame, our Chief Operating Officer, who will provide an update on our operations during the quarter.
James Rhame : Thank you, Ben. Good morning everyone. I'll start as always with a report on our health safety and environmental performance. The third quarter 2023 was another clean quarter with zero OSHA recordables and zero incidents of environmental noncompliance recorded across the entire company. Additionally, Mobile saw zero process safety events and continue to set all-time site records in EH&S performance. This has been achieved with the focus of the organization during an extremely busy time. I'm very proud of our employees, at every location for prioritizing the safety of the people working within our sites as well as our surrounding neighbors within the communities where we live and work. I must say thank you, to this group of dedicated employees Legacy and Mobile for their continued focus on our core values of caring for one another.
Our operations team at Mobile site demonstrated strong operational performance of the conventional facility during the quarter, with average throughput volumes of 80,171 barrels per day for a capacity utilization of 107%, ahead of our previous guidance. Strength in throughput volumes reflect the continued optimization of the company's crude oil procurement strategy to mitigate against potential supply risk. Great job by both operations as well as our marine logistics group, for skillfully navigating these challenges. Total OpEx per barrel for the quarter was in line, with our previous guidance at $3.70 per barrel and reflect a combination of higher throughput volumes, as well as cost efficiencies gained from smooth operations quarter-over-quarter.
Our conventional fuels gross margin per barrel during the quarter was $17.56. Our finished products such as gasoline, diesel and jet fuel accounted for 67% of our total product yield during the third quarter of 2023. This was ahead of our prior guidance and reflecting the continued focus on facility-wide yield optimization as we previously described. This focus on enhanced yields of high-value finished fuels covers a wide variety of activities from feedstock selection, through optimization at the individual unit level and in turn maximizing value. This has been a concentrated effort, relying on every function of the refinery to find the means to create the greatest value within the asset. The same approach is being applied at our Marrero facility, focusing on operational excellence and yields to create the greatest value offered by the market.
I'm very proud of the whole organization. Now, turning to our renewable fuels business. Vertex's renewable diesel plant operated smoothly, generating total renewable fuel's gross margin per barrel of $4.78 for the quarter. Our renewable throughput volumes averaged 5,397 barrels per day, for a capacity utilization of 67.5% strategically reduced to balance supply economics and support feedstock pathways development. Our total production of renewable diesel for the third quarter averaged 5,297 barrels per day, demonstrating a renewable product yield of 97.8%. As Chris will highlight in a moment, our crude oil throughput for the fourth quarter, are expected to be down to approximately 70,000 barrels per day due to two factors. Early in the fourth quarter, Mobile performed a total plant outage allowing the local power provider to proactively replace the main electrical transformer that services the site.
This replacement was planned and executed successfully under our control to prevent an unplanned electrical outage at the site. The plan has returned near full rates since the completion of this outage. Additionally, during the fourth quarter, there will be a crude unit furnace deco that is planned and scheduled. This scheduled pit stop will be executed within the next month, outside of peak holiday periods. I will now turn to Chief Financial Officer, Chris Carlson, for a review of the company's financial results.
Chris Carlson: Thank you, James and welcome to those joining us on the call today. For the three months ended September 30, 2023 Vertex reported net income attributable to common shareholders of $19.8 million or $0.17 per fully diluted share, versus net income attributable to common shareholders of $22.2 million or $0.15 per fully diluted share in the third quarter of 2022. Included in this quarter's net income, is an inventory valuation adjustment charge of $9.4 million. We reported adjusted EBITDA of $51.5 million in the third quarter of 2023 versus $1.6 million in the prior year period. Total capital expenditures for the third quarter 2023, were $21 million in line with our prior guidance issued on August 8. Turning to the balance sheet.
As of September 30 2023, the company had total cash and equivalents including restricted cash of $79.3 million versus $52.1 million at the end of the prior quarter. Vertex had total net debt outstanding of $163 million, at the end of the third quarter of 2023 including various lease obligations and implying a net debt to trailing 12 month adjusted EBITDA ratio of 1.3 times, as of September 30, 2023. Regarding our ongoing balance sheet optimization strategy, we are proactively conducting cost benefit analysis around our existing term loan and potential refinancing pathways in pursuit of more efficient sources of capital. We continue to be opportunistic by cleaning up the remaining $15.2 million of convertible notes outstanding, following our recent cashless equity exchange transaction completed back in June.
Improved pricing for conventional fuels during much of the third quarter benefited conventional fuels gross margin, most notably, this uplift in conventional pricing for the third quarter provided a notable tailwind to financial results and was compounded by improved run rates and yields in our conventional fuels business, as James outlined earlier. During the third quarter, we identified the rally in gasoline prices as a substantial opportunity to limit market price exposure ahead of a seasonally weak period for gasoline cracks. As a result, we hedged gasoline cracks covering approximately 27% of gasoline production for the fourth quarter of 2023. Looking to the fourth quarter of 2023, we anticipate total conventional throughput volumes at Mobile to be between 68,000 and 71,000 barrels per day reflecting planned downtime as James noted.
Expected yields of conventional fuel products such as gasoline, diesel and jet fuel is expected to be between 64% and 68%, with the balance in intermediate and other products such as VGO. Turning to our renewable diesel operations. We anticipate total renewable throughput volumes of 4,000 to 6,000 barrels per day reflecting 50% to 75% of our total Phase 1 operational capacity. Our yield on renewable volumes is expected to be 97% to 98%. OpEx per barrel on a consolidated basis is expected to be $3.95 to $4.20 for the fourth quarter and we anticipate total capital expenditures for the quarter to be between $15 million and $20 million. I'd now like to turn the call to Chief Commercial Officer, Doug Haugh, who will provide updates on the commercial business and RDs.
Doug Haugh: Thanks, Chris. As James mentioned, one of our critical objectives for the quarter was to expand our feedstock blending to include runs of Tallow, DCO and canola at volumes sufficient to support the data collection required for our LCFS pathway approvals. We successfully completed runs to support our soy DCO and canola pathways in the third quarter and we're finishing up the tallow runs this month. We have also successfully completed our LCFS temporary filings and are pleased to report that we will receive LCFS credits at the default carbon intensity values for all of our RD production in the third and fourth quarter of this year. The next step is to complete our filings for each of the four feedstocks, on which we now have proprietary run rate data and detailed carbon intensity analysis soy, DCO, canola and tallow.
This will allow us to receive the increased credit value available with our lower carbon intensity production as compared to the default temporary values. We expect to complete that next step in the LCFS process during the fourth quarter as scheduled. As James noted earlier, RD margins during the third quarter were modest but drove a positive gross profit of $2.4 million for the quarter. This margin environment not only supported us in running at rate sufficient to complete our feedstock qualification process but also to prove our finished product logistics and delivery capabilities to the West Coast. Vessel loading and delivery of our product California markets has now been completed for all of our renewable diesel production to date, successfully validating these critical logistics and delivery capabilities multiple times since commercial production began.
These shipments allow us to benefit from the value of LCFS credits for all of our production during the third and fourth quarter and will contribute to the fourth quarter financial performance of our renewables business. The collaboration with Idemitsu, our offtake partner, who maintains the terminal and marketing assets across several West Coast ports has been incredibly positive and productive throughout this process. We really appreciate their support. Another primary focus for our trading and supply teams this quarter was the continued development of our renewable feedstock procurement strategy via the expansion of our roster of reliable suppliers. We have continued to add approved suppliers to our supply chain for soy DCO canola and tallow and have started the sample testing and qualification processes needed to begin bringing in eco supply for multiple suppliers.
The testing and regulatory qualification required for these feeds includes the exchange of detailed information on origins and the application of proprietary processes used in the collection and processing. These important considerations assure the consistent quality of feedstock supplies and reflect the significant investment of time and money by our suppliers. So we appreciate and value their efforts as we bring forward this part of our RD strategy by many months. We also continued to build our trading and supply capabilities this quarter with the opening of our new trade floor in Mobile that will support the expansion of our trading supply, logistics and marketing teams. Our trade flows support both our conventional and renewable refining assets, working to maximize profitability by identifying the most attractive opportunities for feedstock supply and finished product sales.
Along with this build-out of trading capability, we've successfully entered the marine fuels business with the launch of Vertex Marine Fuel Services, a marketing business in Mobile Bay and surrounding markets. This team of marine fueling experts now offers marine fuels via terminal truck and barge supply. Establishing these commercial teams with trading, supply, marketing, logistics and sales capabilities provides the foundation for us to expand the available margins on our production volumes through the continued development of a truly integrated strategy. As James mentioned, our refinery in Marrero also performed well this quarter and that was supported by a strong performance in both our proprietary collection businesses and our third-party aggregation business.
The build-out of our commercial trading and marine fuel services capabilities to support our mobile production, now also supporting the integration of our Marrero production into our finished products marketing. This quarter, we have established the fuel blending and transportation infrastructure needed to optimize portions of our Marrero production directly in our marine fuels marketing activities, which improves our netbacks and competitive position in those markets. In summary, during the third quarter we continued completion of the key commercial milestones needed to advance our renewable supply chain strategy, while also expanding our capabilities to blend, distribute and market our conventional products. My thanks to the team for all the extra work it takes to build new capabilities, while safely and profitably running the current business.
Now, back to Ben for a few closing remarks.
Ben Cowart: Thank you, Doug. Throughout the third quarter of 2023, we have worked as a team to bring continuous improvement to each of our tight locations, commercial operations and internal business processes. We know the value of strategic positioning and we have been proactively executing key objectives aimed at scalability and reliability, so we can best position ourselves ahead of the market. We see the renewable demand outlook for California generating strong economic potential over the coming years. The work we continue to do around optimizing our assets, developing feedstock blends, deepening our supply chain logistics, growing our marketing and trading capabilities are how we plan to deliver on our vision of building an energy transition company.
We're excited about the renewable opportunities we see ahead and we are committed to our long-term strategy of driving sustainable growth and creating value for our stakeholders. As we conclude, our third quarter 2023 update. I want to thank our team members across the entire business for their relentless contribution. Additionally, I'd like to thank you all for joining us on the call today and for the continued support of Vertex Energy. With that, I'll now turn the call over to our operator for questions.
Operator: [Operator Instructions] Your first question comes from the line of Donovan Schafer with Northland Capital Markets. Your line is open.
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