8-K: Vertex Energy Corrects Fourth Quarter and Full Year 2023 Financial Results, Reports Net Loss

Vertex Energy issued a corrected press release for its fourth quarter and full year 2023 financial results, revising the reported net loss per fully-diluted share.

Summary

• Vertex Energy corrected its previously released earnings report for the fourth quarter and full year of 2023.
• The corrected report shows a net loss attributable to the company of ($63.9) million, or ($0.68) per fully-diluted share for the fourth quarter of 2023.
• This is compared to a net income of $44.4 million, or $0.56 per fully-diluted share for the fourth quarter of 2022.
• The full year 2023 net loss attributable to the company was ($71.5) million, compared to a net loss of ($4.8) million in 2022.
• Adjusted EBITDA for the fourth quarter of 2023 was ($35.1) million, down from $75.2 million in the same period of 2022.
• Full-year 2023 Adjusted EBITDA was $17.1 million, a significant decrease from $161.0 million in 2022.
• The company's conventional throughput at the Mobile Refinery was 67,083 barrels per day in the fourth quarter of 2023.
• Renewable diesel throughput was 3,926 barrels per day, representing 49.1% of Phase One capacity utilization.
• Vertex had total cash and cash equivalents of $80.6 million, including $3.6 million in restricted cash, as of December 31, 2023.
• The company received $50 million in additional term loan proceeds during the fourth quarter of 2023.

Sentiment

Score: 3

Explanation: The document reveals significant financial losses and a substantial decrease in profitability, despite some operational achievements. The need for a strategic evaluation and potential capital raise indicates underlying financial challenges, leading to a negative sentiment.

Positives

• The Mobile Refinery's conventional operations achieved a 98% capacity utilization for the full year 2023.
• The company successfully completed runs to support filing for proprietary carbon intensity scores of LCFS pathways for Tallow, Soy, distillers corn oil (DCO) and Canola.
• Vertex received an initial LCFS payment of $9.6 million in the fourth quarter of 2023.
• The company has hedged approximately 38% of planned diesel and distillate production for the first quarter of 2024.
• The company believes it has adequate financial flexibility to meet its needs based on the total liquidity position.

Negatives

• The company reported a significant net loss for both the fourth quarter and full year of 2023.
• Adjusted EBITDA decreased substantially compared to the previous year.
• The renewable diesel facility reported a gross loss of $(17.6) million in the fourth quarter of 2023.
• The company's net debt to trailing twelve-month Adjusted EBITDA ratio was 12.0 times as of December 31, 2023.
• The company's full year 2023 results were largely attributable to losses in the Renewables segment due to elevated costs for Refined, Bleached and Deodorized (RBD) soybean oil feedstock, and increased corporate segment expenses for overhead to support business expansion.

Risks

• The company faces risks related to the volatility of commodity prices and credit values.
• There are risks associated with the timing and outcome of the evaluation of carbon intensity scoring of feedstock blends.
• The company may require additional capital in the future to complete capital projects and satisfy liabilities.
• There are risks related to the company's ability to comply with required covenants under outstanding senior notes and a term loan.
• The company is exposed to risks related to the volatile nature of the prices for oil and gas caused by supply and demand, including volatility caused by the ongoing Ukraine/Russia conflict and/or the Israel/Hamas conflict, changes in interest rates and inflation, and potential recessions.

Future Outlook

The company's priorities for 2024 are to increase its cash position, reduce operating costs, and improve margins. They also expect margin opportunities under the new credit regime post-2024 and are focused on optimizing feedstocks.

Management Comments

• Mr. Benjamin P. Cowart, Vertex's Chief Executive Officer, stated, 'In 2023, we focused on establishing new lines of business, expanding our capabilities, and positioning ourselves for growth into new markets.'
• Mr. Cowart continued, 'As we move into 2024, our priorities are to increase our cash position, reduce our operating costs, and improve margins.'

Industry Context

This announcement reflects the challenges faced by energy companies in the transition to renewable fuels, particularly with fluctuating feedstock costs and the need to optimize operations. The company's focus on strategic integration and new business lines is a common approach in the industry to enhance profitability and capture additional value.

Comparison to Industry Standards

• Vertex's conventional refinery throughput of 73,734 bpd for 2023 is comparable to smaller independent refiners, but its renewable diesel throughput of 3,926 bpd is still in the early stages of development compared to larger players like Neste or Valero.
• The company's Adjusted EBITDA of $17.1 million for the full year 2023 is significantly lower than the industry average for refiners of similar size, indicating challenges in profitability.
• The net debt to trailing twelve-month Adjusted EBITDA ratio of 12.0 times is high compared to industry benchmarks, suggesting a higher level of financial risk.
• The gross loss of $(17.6) million in the renewable diesel facility for Q4 2023 is concerning, as many other renewable diesel facilities are reporting positive margins, indicating potential operational or feedstock cost issues.
• The company's hedging strategy, covering 38% of planned diesel production for Q1 2024, is a common practice in the industry to mitigate price volatility, but the effectiveness of this strategy will depend on market conditions.

Stakeholder Impact

• Shareholders will be negatively impacted by the reported net loss and decreased profitability.
• Employees may be affected by potential cost-cutting measures.
• Customers may be impacted by changes in the company's operations and product offerings.
• Suppliers may be affected by changes in the company's feedstock strategy.
• Creditors may be concerned about the company's increased debt and financial performance.

Next Steps

• The company will host a conference call to discuss fourth quarter 2023 results.
• The company will continue its strategic evaluation process with BofA Securities.
• The company will focus on increasing its cash position, reducing operating costs, and improving margins in 2024.

Key Dates

Keywords

Vertex Energy, Refining, Renewable Diesel, Adjusted EBITDA, Throughput, Net Loss, LCFS Credits, Mobile Refinery, Financial Results, Commodity Hedging