10-Q: Vertex Energy Reports Q1 2024 Results, Impacted by Renewable Diesel Unit and Market Volatility

Vertex Energy's first quarter results for 2024 were impacted by losses in the renewable diesel unit and decreased benchmark prices, despite a slight increase in overall revenue.

Summary

• Vertex Energy reported a net loss of $17.9 million from continuing operations for the first quarter of 2024.
• The company's revenue increased slightly to $695.3 million, compared to $691.1 million in the same period last year.
• The gross profit decreased significantly to $35.1 million, down from $67.5 million in the first quarter of 2023.
• The decrease in gross profit was primarily due to losses in the renewable diesel unit and decreased benchmark prices at the Mobile Refinery.
• The company's refining segment saw a decrease in gross profit of $27.7 million, while the renewable diesel unit generated a gross loss of $10.5 million.
• Operating expenses decreased slightly to $40.9 million, compared to $43.0 million in the first quarter of 2023.
• Interest expense increased to $17.7 million, up from $12.5 million in the same period last year, due to increased borrowing.
• The company had a gain of $6.7 million on the change in value of derivative warrant liability, compared to a loss of $9.2 million in the prior year period.
• The company's fuel gross margin per barrel of throughput decreased by 28% compared to the first quarter of 2023.
• The company's Black Oil and Recovery segment generated a gross profit of $3.8 million.

Sentiment

Score: 3

Explanation: The document indicates a negative sentiment due to the net loss, decreased gross profit, and concerns about the company's ability to continue as a going concern. The company is facing significant challenges in its renewable diesel unit and is exposed to market volatility and debt obligations.

Positives

• The company's revenue increased slightly compared to the same period last year.
• The Black Oil and Recovery segment generated a gross profit of $3.8 million.
• The company had a gain of $6.7 million on the change in value of derivative warrant liability.

Negatives

• The company reported a net loss of $17.9 million from continuing operations.
• The gross profit decreased significantly due to losses in the renewable diesel unit and decreased benchmark prices.
• The Mobile Refinery's gross profit decreased by $27.7 million.
• The renewable diesel unit generated a gross loss of $10.5 million.
• Interest expense increased to $17.7 million due to increased borrowing.
• The company's fuel gross margin per barrel of throughput decreased by 28% compared to the first quarter of 2023.
• There is substantial doubt about the company's ability to continue as a going concern due to the Term Loan maturing on April 1, 2025.

Risks

• The company's ability to continue as a going concern is in doubt due to the Term Loan maturing on April 1, 2025.
• The company is facing challenges in the renewable diesel unit, which is currently operating at a loss.
• The company is exposed to fluctuations in commodity prices, which can significantly impact revenue and cost of revenues.
• The company is subject to various legal proceedings, which could have a material adverse impact on its business.
• The company's reliance on a single vendor for crude oil purchases poses a risk.
• The company's debt obligations, including the Term Loan and Convertible Senior Notes, could impact its financial flexibility.
• The company's ability to refinance its debt or raise additional capital is uncertain.
• The company's operations are subject to environmental regulations and potential liabilities.

Future Outlook

The company plans to optimize its hydrocracker capacity between conventional and renewable fuels based on market conditions. They also intend to expand feedstock supply, broaden customer relationships, and re-refine higher value end products.

Management Comments

• Management has determined that there is substantial doubt about the Company's ability to continue as a going concern within one year of the financial statement issuance date primarily due to the Term Loan maturing on April 1, 2025.
• Management's plans to mitigate the going concern risk include current efforts to refinance the debt of the Company with a new lender group, and the various efforts underway to reduce and minimize costs throughout the organization.

Industry Context

The results reflect the volatility in the energy markets, particularly the fluctuations in crude oil and refined product prices. The company's performance is also impacted by the regulatory environment, including the Renewable Fuel Standard (RFS).

Comparison to Industry Standards

• The company's fuel gross margin per barrel of throughput decreased by 28% compared to the first quarter of 2023, indicating a weaker performance compared to the previous year.
• The company's refining adjusted EBITDA was $23.2 million, which is a decrease compared to $40.9 million in the same period last year, suggesting a decline in profitability compared to industry benchmarks.
• The company's crack spread averaged $22.11 per barrel, compared to $31.59 per barrel in the same period last year, indicating a less favorable market environment for refining operations.
• The company's operating expenses per barrel of throughput increased to $4.10, compared to $3.84 in the same period last year, suggesting a decrease in operational efficiency compared to industry standards.

Corporate Governance

Legal Proceedings

• The company is involved in various legal proceedings, including the Doucet litigation, Penthol litigation, putative class action litigation, and shareholder derivative lawsuits.
• The company intends to vigorously defend itself against these allegations.
• The company is unable to anticipate the ultimate impact, if any, that the legal proceedings may have on the consolidated financial position, liquidity, results of operations, or cash flows of the Company.

Related Party Transactions

• The company consults Ruddy Gregory, PLLC., a related party law firm of which James Gregory, a former member of the Board of Directors, and the General Counsel and Secretary of the Company as of December 31, 2023, serves as a partner.
• During the three months ended March 31, 2024 and 2023, the company paid $172 thousand and $185 thousand to such law firm for legal services rendered.

Stakeholder Impact

• Shareholders are negatively impacted by the net loss and the uncertainty about the company's ability to continue as a going concern.
• Employees may be affected by cost-cutting measures and potential restructuring.
• Customers may be impacted by changes in product offerings and pricing.
• Suppliers may be affected by changes in procurement strategies.
• Creditors are at risk due to the company's debt obligations and the uncertainty about its ability to repay them.

Next Steps

• The company plans to optimize its hydrocracker capacity between conventional and renewable fuels based on market conditions.
• The company intends to expand feedstock supply, broaden customer relationships, and re-refine higher value end products.
• The company is working to refinance its debt with a new lender group.
• The company is working to reduce and minimize costs throughout the organization.

Key Dates

Keywords

Refining, Renewable Diesel, Crude Oil, Used Motor Oil, Financial Results, Gross Profit, Net Loss, EBITDA, Throughput, Term Loan, Going Concern, Commodity Prices, Mobile Refinery, Black Oil, Recovery