Q2 2021 Vertex Energy Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the vertex energy second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode and we will open the floor for your questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Noel Ryan for the floor is yours.
Thank you Matthew and good morning, and welcome to vertex energy second quarter 2021 results conference call.
Leading the call today are chairman and CEO, Ben Cowart, CFO, Chris Carlson and C O O John Strickland.
We issued a press release before the market opened this morning detailing our second quarter results.
I would like 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 in the press release issued today.
Today's call will begin with remarks from Ben Cowart for.
Followed by a financial review from Chris Carlson.
At the conclusion of these prepared remarks, we will open the line for questions and with that I used to follow up for that.
Thank you good morning that was going to us today.
While Chris will discuss our second quarter results in greater detail shortly for the purpose of today's call I want to begin with the progress update on our pending acquisitions other mobile refinery, including key milestones prior to the close of the transaction during the fourth quarter of 2021.
As we first announced in May of this year vertex has entered into a definitive agreement to acquire the mobile Alabama refinery from shale for $75 million upon.
<unk> of this acquisition to move oil refinery will become our flagship refining asset strong platform upon which to build an energy transition business of scale.
Our initial vision for this asset involves 2 transformational capital projects for the first project involves the modification in mobile refinery Hydrocracking unit.
To produce renewable diesel on a standalone basis upon completion of the project by year end 2022, the refinery will commence production of approximately 10000 barrels per day of renewable diesel increasing to 14000 barrels a day by mid year 2023, while continuing to supply conventional fuel.
Through the regional market at current rates.
The second project that is still in development involves a renewable feedstock pretreatment unit at the Myrtle Grove facility in Belgium, Louisiana, the free treatment project.
Which is expected to be completed by year end 2023 is expected to provide increased feedstock processing optionality positioning us to achieve lower landed cost for feedstock that can be supplied to the mobile refinery over the long term.
In recent months, we have conducted numerous discussions with global commercial banks and other tier 1 and tier 2 lenders to support our near term financing requirements.
<unk> several of which have now reached advanced stages. We've stayed focused on several key financing objectives first we want to maintain simple capital structure with significant optionality to support future organic and inorganic growth. We are currently evaluating term loan ABL and.
Green bond markets as potential options available to US second we will continue to negotiate the lowest cost of capital available while seeking out a long term lending relationship with an established institutions. Finally, we will seek to negotiate covenant light agreements consistent with what is generally.
<unk> within the industry at this juncture, we expect to fund the mobile refinery through a combination of debt financing and liquidity available to us we expect to reach completion of home financing element before September 30.
2021.
Which once finalized will allow us to proceed with our plans turning now to a separate discussion around our recent announced divesture of our <unk> collection and recycling assets.
In June and June safety, Kleen submitted an unsolicited offer to acquire our U M O collection and recycling assets for $140 million.
Have known the safety Kleen team for years and have a lot of respect for how they do business after careful consideration.
Our board of directors concluded that the sale of these assets for safety Kleen was the optimum outcome for all shareholders given our focus on pursuing higher growth higher margin energy transition businesses.
Safety coming recognize the value of our black oil recycling assets, resulting in a compelling all cash offer.
Importantly, this transaction will serve to.
Accelerate April recapitalization of our balance sheet.
After retiring cost costly term debt and other financial obligations, we expect to bring approximately $90 million of cash into our business at the closing of this transaction.
Transaction with safety Kleen is expected close during the third quarter 2021 contingent upon regulatory clearance for various customary closing conditions and the approval of our shareholders by.
By year end 2021, vertex will become a pure play refiner of renewable and conventional feedstocks are streamlined asset portfolio.
Simplified capital structure and strategic focus on energy transition opportunities represents a wholesale transformation of our investment thesis.
That positions us to create measurable value for our shareholders as we enter this next important phase of growth. We are structuring vertex to become an energy transition company of scale, 1 focused on driving profitable growth through high return organic and inorganic investments in conclusion I want to congratulate our team.
On their outstanding performance during the second quarter, we executed on plan meeting Street consensus EBITDA by a significant margin simplified our capital structure with the full conversion of all remaining preferreds in the common equity negotiated a major asset divesture with safety Kleen and continue to.
Move forward on our acquisition of the shale mobile refinery.
It has been exciting it's been an exciting period for our people 1 that reflects the team's ability to simultaneously manage a complex series of independent decision points I'm proud of what the team has accomplished and look forward to building on this progress as we move into the remainder of the year.
With that I'll hand, the call over to Chris for.
For a review of our recent financial performance.
Thanks, Ben and welcome to those joining us from the call today.
For the 3 months ended June 32021, the company reported a net loss of $16 million versus a net loss of $8.9 million in the second quarter 2020.
Vertex energy generated income from operations of $1.6 million in the second quarter 2021 versus a loss from operations of $8.6 million in the prior year period.
The company reported adjusted EBITDA of $4 million in the second quarter 2021, including $1.2 million of transaction cost for the 2 transactions that are underway.
When compared to a loss of $5.3 million of adjusted EBITDA in the prior year period.
Vertex generated a free cash flow of $1.1 billion in the second quarter 2021.
Second consecutive quarter of free cash flow improvement.
During the second quarter of 2021, a combination of improved refined product margins.
<unk> volume growth and strong operational reliability contributed to our year over year improvement in operating income and adjusted EBITDA when compared to the prior year period.
As of June 32021, the company had total cash and availability on our blending facility of $15 million and $3.2 million respectively.
Total cash and availability at the end of the second quarter included $11 million of total cash limited the use by the 2 SPV.
Vertex had total long term debt outstanding of $6.9 million as of June 32021.
Effective on June 24, 2021 as to the series B, 1 preferred stock and June 'twenty, 5.2020, 1 as to the series B preferred stock the automatic conversion provisions of the series B stock and B, 1 preferred stock per trigger.
And the outstanding shares of the company's series B preferred stock and series B, 1 preferred stock automatically converted into common stock for the company.
As of June 32021, all issued and outstanding series, B and B, 1 preferred stock had been converted to common equity.
As of June 32021, there were $59.9 million common shares issued and outstanding.
With that I will turn the call over to the operator as we take questions from those joining us on the call today.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star 1 on your phone at this time.
We do ask for a while posing your question. Please pickup your handset and for listening on speaker phone to provide optimum sound quality.
Again, if you have any questions or comments. Please press star 1 on your phone. Please hold while we poll for questions.
Your first question is coming from Amit Dayal.
Your line is live.
Good morning, Thank you for taking my questions.
It looks like the.
The other strategic transactions are still on track.
And then.
In terms of your expectations for additional Capex etcetera for the mobile defined I mean is there any change to that are you still sticking with the I.
I think the roughly 85 million dollar number initially that you need for.
For the Hydrocracking unit is there anything else that might come up.
She can just some of your expectations on that from.
No.
The conversion is the real focus.
There is maintenance capital that will be.
Part of the business, obviously going forward and that's not not going to change.
The.
The work is.
In the fair way things are going extremely well related to the conversion and.
I would say where we are.
And the ZIP code of what we anticipated so things are.
Things are progressing.
As good as we could expect on.
For the technology for the for the plan.
Understood.
Yes.
Is this.
If the euro and low assets recycling assets that we have right now.
That transaction with clean harbors.
Before September 30th.
There's a GAAP over roughly a quarter before the next transaction losses I'm just trying to see how we should be modeling for this interim period.
Between these 2 transactions from losing any thoughts from that.
Yeah.
No.
The clean harbors transaction.
Is progressing on schedule, probably towards the backend of the quarter.
And I would say if.
Couple of things.
Clip off here on the shale transaction, we hope to be in the front of the fourth quarter. So I'm not sure how much of a GAAP.
Sure.
Is are our expectation, we're trying to bring them both both.
And.
In the same.
Timeframe, if we can do to reduce that but.
Theres certainly needs to be a conversation in EMEA.
Something.
That we don't control.
Separates those 2 transactions.
From what we think is going to happen. So we can we can talk about that off line for sure.
Yes.
I think most of my other questions learning model for that.
Transmission.
Okay.
Yes.
<unk>.
Yes.
Yeah.
Yes.
Last year for.
I couldn't hear what you said could you repeat the question.
I was just saying that.
Pretty much from Martin for the transition for the new.
Mobile artifact.
So my other questions. We can take them offline. That's all I have for now. Thank you. Okay. No problem. Thank you.
Yeah.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star 1 on your phone at this time.
Your next question is coming from Eric Stine Your line is live.
Good morning, everyone.
Good morning, Eric.
So I apologize I jumped on a little late here, just given earning season, but was curious as you think about the mobile refinery.
I know on the last call you kind of mentioned the hydro treater being out.
Rolls Royce and maybe could you just go into a little bit why.
Why that's important in terms of producing the renewable diesel.
And then I'd also love to just hear kind of the.
The setup for how you feel about having ample hydrogen production.
Yeah, Okay. So.
Net.
This facility is unique.
As we see it.
Because the hydro treater had a unique function inside a regular conventional refining assets this making motor fuels gasoline diesel jet fuel.
The.
The mid grade the vacuum gas oil.
Was is going through this hydro cracker for the purpose of making a heavy olefin chemical feedstock so it.
It had a chemical focus our chemical purpose.
The design of this cracker in the operations of this cracker has.
Has had its own separate focus so the refineries very skilled and operating this hydro cracker.
It's got all the let's say bells and whistles for its service today and a lot of those.
<unk>.
Attribute.
The equipment and the design of the plant.
Land to a.
A very.
Good renewable diesel production unit.
So theres not theres not a lot of <unk>.
Reinventing this process are retooling.
At a very severe and expensive and time consuming basis. So so.
We're very fortunate that the.
The asset that we're acquiring already had a.
A big head start related to.
The way the plant operates today with this cracking in so so that's.
When you think about the work involved in and making renewable diesel.
This is a this is a big head start for us. So we're very thankful for that when it comes to hydrogen renewable diesel production is.
Very hydrogen intensive so.
The other good.
<unk>.
Point to make is when we get this hydro cracker. We also get the hydrogen production. That's on site that is being used in that process.
Now for us to quickly come into the market with a meaningful level of production at 10000 barrels a day.
So we don't have to go and create.
Any new hydrogen to do that so that's another big positive now we will upgrade the production capacity to 14000 barrels a day.
And this will come by adding additional hydrogen generating capacity.
That actually will be.
Fueled by the co.
<unk> that come off the initial process so.
We will be able to make hydrogen using renewable propane and renewable naphtha, which are both co products and making renewable diesel.
So that's going to be a capital project that is.
Done through.
Our partnership on site.
They will they will provide the additional capacity and.
That will come to us just like it does today.
A cost totaling cost from the heidrick.
So that's the plan.
And that's how we go from 10000 barrels a day of renewable diesel production to 14000 barrels a day so that answer your question.
Yes, no. That's helpful. I mean, I know that those are the hydro for.
<unk> and hydrogen are 2 areas.
<unk>.
It's somewhat for others, who have gone down to our renewable diesel route it's been a bit of a roadblock or caused some bumps. So good to know that those are both in place.
On the hydrogen side, though you mentioned the additional investment is that something.
Yeah.
So that's above and beyond kind of the capex, you've talked about to bring on the hydrogen for that additional renewable diesel capacity.
We have a term sheet that is being finalized with a third party.
Supplier of our hydrogen where they're handling the capex to install.
For additional equipment.
Got it.
Okay that is helpful and then maybe.
Could we just talk a little bit on the feedstock side I know that.
At Myrtle Grove, Youre upgrading the pre processing capabilities.
Is it too early or how should we think about how much you may source for them.
In the midst to close on or that you would source from yourself.
Well.
Let me be clear.
<unk>.
The relationship with day to Mitsui has nothing to do with the feedstock. So they are our off take partner. So they will they will take all of the renewable diesel production.
As that's what the intimate relationship represents so our feedstock.
So what.
What we'd start to refinery owned which would be a refined.
<unk> been all like.
Canola.
Soybean oil or maybe a technical tallo.
That feedstock will come from your major producers that.
That will supply directly to the refinery Myrtle Grove will function as a pretreatment unit that will process second generation.
Feedstocks that need.
Work before you can send them to the refinery and so that's what the investment at Myrtle Grove will represent so we have.
We have finalized the.
The technology work around the pre treatment.
<unk> and the design of that plant and so today, we're working on day.
OSB are the outside battery limits as far as the.
41 acre site and all the the connecting infrastructure that needs to support that pretreatment unit and so.
We've contracted with our EPC.
Firm that is doing that work as we speak so everything is underway and in the fair way related to the pre treatment.
Expansion at the Myrtle Grove site.
Got it thanks for clearing up the misunderstanding for me. So just I guess last 1 just on little growth.
I mean is there a way is it too early to quantify what what the feedstock benefit would be or the pricing benefit because I know you'd be able to use things that are lower cost feedstock, that's lower cost versus say soybean oil with.
I think prices are pretty elevated right now.
Yeah, no. That's a good good question and that will.
Continued to the net value of pre treatment will continue to move based on.
More specifically the <unk> credits that are provided by California.
And so you pick up a benefit because your process in second generation feedstocks that are beyond your first generation feedstocks.
And the model is in the $40.45 per gallon range from an improvement in value.
So its day.
They are significant we anticipate <unk> to <unk>.
Fall back from where it is today as more and more producers.
Land product in California so.
And then we also are expecting more <unk> markets to open up.
<unk>.
In the future. So so thats currently where it's at.
Our production.
Capacity for for the site is currently planned to be more than the fee that we need.
At mobile so we hope to.
Have.
Material.
And processing.
The second generation feedstocks, where we believe as a company we've got a very strong quarter.
Core competency.
Around that area of the business.
Okay. Thanks, a lot.
Thank you.
Thank you. Your next question is coming from Brian Butler. Your line is live.
Hi, good morning, Thanks for taking my questions.
Hi, guys, if I repeat anything I had some overlapping earnings calls as well.
No problem I guess.
Just the first.
First question just what's the inflation could you talk maybe about a little bit of inflation have you seen any pressures in the second quarter and then just thoughts on what could that mean for the planned upgrades the 85 million for the hydrocracker and the $40 million for our Myrtle Grove.
Other potential.
Upward pressure on those costs or or delays as labor availability has been kind of an issue.
Oh, that's a good question because.
We definitely see some shortage around materials.
Your.
What people are typically experiencing but based on our time lines.
The.
Our suppliers of long lead equipment et cetera are very comfortable with.
Where our equipment needs are going to land, we thought we were going to run into more of an issue, but as we sit today I think we're okay.
I don't have day, Phil on the call to speak exactly to that.
The supply chain, but I did follow up on that with him and he and I discussed it and he felt like our schedule is as.
His firm today, so we don't anticipate.
That being a problem related to the conversion of the project.
So I think.
You've probably seen an increase of bean oil prices. So this comes back to.
The global markets for soybean oil and so that that price is escalated here I guess a lot of that is related to growing seasons.
Many other factors, including biodiesel.
So producers press in the market just like we are to term up supply and that's part of it but.
The future.
Pricing for <unk> has come in coming back down so we don't anticipate that being a.
Material change as we start to plant either so.
I think so far so good related to the question.
Okay, great. Thank you I think that was all my questions at the moment. Thank you.
Thank you Brian.
Thank you there are no further questions in the queue.
Okay, well. Thank you everybody I know this was a short call.
The good thing is we're wrapping up another great operating quarter, So I really don't want to.
I know, we're looking forward I know thats. Our goal now is very clear on where we're going with the business.
But our team did a great job once again.
Ahead of.
Planned and executed across the business.
Our collection growth our refining production.
I think everybody's been great. We anticipate our quarter ahead to be fairly full quarter is what our anticipation is and to kind of continue the course that we were on in the second quarter. So all as well from our day to day business.
Our teams are focused on running the business and continuing to execute.
Exactly to plan and so.
Everything is in a fair way as we see it on our our transactions.
And so it's it's blocking and tackling from here a lot of work.
Simultaneously so trying to manage all of this for a month.
Multi facet parallel standpoint.
I think this this past quarter clearly demonstrates our ability to do all this and stay the course so.
I just want to.
Thanks, Thank everybody from.
The interest in what we're doing and in the future of where we're going I think is very exciting and I believe our team has a foundation deeply set to be very successful.
In this new frontier. So thank you for joining the call and if you have any questions feel free to reach back to.
No Ron and I are at vertex energy Dot com.
We will be glad to keep you in the loop.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.
Okay.