Vertex Energy, Inc.
Q4 2020 Earnings Call Transcript

Published:

  • Operator:
    Good morning, ladies and gentlemen, and welcome to the Vertex Energy Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, the floor will be placed in a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host Noel Ryan. Sir, the floor is yours.
  • Noel Ryan:
    Thank you, Holly. Good morning and welcome to Vertex Energy's fourth quarter and full year 2020 results conference call. Leading the call today are our Chairman and CEO, Ben Cowart; our CFO, Chris Carlson; and our COO, John Strickland. We issued a press release before the market opened this morning, detailing our fourth quarter and full year results. In conjunction with this release, we also posted a conference call presentation that is located in the Investor Relations portion of our corporate website at vertexenergy.com. We will reference this presentation throughout the remainder of today's conference call.
  • Ben Cowart:
    Thank you, Noel, and good morning to those joining us today. Early today, we posted a company presentation materials on the Investor Relations section of our website that we will refer to throughout this call. 2020 was one of the most challenging periods in the history of our company, a year impacted by global pandemic, feedstock supply shortages and weak refining margins yet. In many respects, it was also our finest hour, as we introduced new product lines, operational capabilities that lay the foundation for profitable growth in the years ahead. While our full year results reflect the impact of pandemic related challenges faced by many businesses in our industry, we believe the worst is behind us. During the fourth quarter and into the first quarter of 2021, UMO feedstock availability continues to improve while refined product margins recover meaningfully, leading us to operate our refineries at elevated rates. The fourth quarter marked the second sequential quarter of adjusted EBITDA improvement, given the combination of new investments, including those related to our filter and antifreeze products business. Together, we've targeted cost reductions and improved product margins although Marrero was impacted by extended downtime during the period, Heartland operated at peak utilization. Total direct used motor oil collections improved 9% year-over-year supported by organic growth in both new and existing accounts. As illustrated on Slide 5, the year over year decline in adjusted EBITDA was due mainly to a decline in refined product margins, given lower commodity prices together with lower sale volumes at Marrero.
  • Chris Carlson:
    Thanks, Ben, and welcome to those joining us on the call today. Turning to Slide 8, for the three months ended December 31, 2020, we reported a net loss attributable to Vertex Energy of $3.4 million versus net income attributable to Vertex Energy of $1.4 million in the fourth quarter 2019. We reported adjusted EBITDA loss of $0.4 million for the fourth quarter of 2020 versus $6.1 million in the prior year period. During the fourth quarter, a combination of lower throughputs at our Marrero refinery and less favorable refined product margins contributed to a year-over-year decline in profitability.
  • Operator:
    Your first question for today is coming from Amit Dayal. Please announce your affiliation then pose your question.
  • Amit Dayal:
    Hi. This is Amit from H.C. Wainwright. Good morning and thank you for taking my questions. On the vaccine utilization side then could you give us some sense of what the utilization levels sort of across the different facilities were in 2020? And where do you expect to be for 2021?
  • Ben Cowart:
    Yes, so Amit, thank you for the question, and the capacity utilization for 2021, I believe, is the question. We see pretty smooth sailing for both refineries there. They've actually performed well in January/February at basically peak rates and that was a build from November and December. So, we got four really strong production months under belt. March looks really good. And other than our plan turnaround at each facility this year, we hope we don't see weather impacts, but we believe the refineries will perform really well.
  • Amit Dayal:
    Understood. And on the UMO collection front, Ben, you did see growth last year. Do you feel this growth should continue this year, just based on, more driving and more economic activity with your existing sort of infrastructure for collection? And do you plan to add additional resources routes any other efforts to grow this business and how big potentially the UMO collection efforts can be in 2021?
  • Ben Cowart:
    Yes, very good question. Obviously, this has been a focus of the Company going back to '19 and all the way through the pandemic. So, I'm very pleased with how our collection team has maintained volumes and even through the downturn added year-over-year volumes. You can see we're 9% year-over-year. We still are at a setback to total miles driven. So, that is additional volume that will come back into the business without a lot of work. So, assuming people get back on the road and start driving. So, there's been a lot of time spent on sales and organic growth around the collection business.
  • Amit Dayal:
    Great. Understood. And could you tell us whether already sort of in the feedstock collection business whether renewable diesel opportunity or is this something you are still thinking about entering?
  • Ben Cowart:
    Yes. No, we're not in that feed stock piece of the business today. It is something we're contemplating with our Myrtle Grove facility based on its asset capacity and its geographic location and the logistic benefits we have at that site. So, this is a growth for that asset that we are working on at this point.
  • Amit Dayal:
    Just one last one from me. Just from your commentary. Should we assume Heartland facility is potentially you're thinking about maybe monetizing this or maybe I got it wrong?
  • Ben Cowart:
    Well, there's nothing specific related to monetize in the Heartland facility. We've noted in our comments that, we continue to evaluate opportunities in different ways to create shareholder value related to our assets, and we've got a good partner in Heartland, and we've made a lot of headway with their capital, and obviously you can see improved -- continued improved results related to that operation. And we believe that will continue this year and all on into the future. So, we definitely -- we like what's been accomplished there. And so, we're kind of steady as we go at Heartland.
  • Operator:
    Your next question is coming from Michael Hoffman. Please announce your affiliation then pose your question.
  • Michael Hoffman:
    Hey, Ben, it's Michael from Stifel. Could you talk about Heartland and Marrero from my different perspective? What do you think nameplate produced gallons should be at both of those? And how do you expect that to play out in 2021?
  • Ben Cowart:
    Yes. Good question. I would say you've got your feed capacity, if that's what you're speaking of. And we believe that, 2021 will probably run at our peak rates. We don't plan to expand the feed capacity at either refinery and that probably is a 65 to 68 million gallons at Marrero and 20 to 21 million gallons at Heartland. On the backside of Heartland, we've made capital improvements to the process that allows us to bring supplemental vacuum gas oil into raise our base oil production, and we're starting down that path today. So, those hopefully in 2021 warren, you'll see a record base oil cell production for that facility.
  • Michael Hoffman:
    Yes. And how do I think about what's the production volumes are?
  • Ben Cowart:
    On the back side of the Marrero plant with some investments that we've made here, last year, we've improved the yield of our vacuum gas oil capacity. And so I think we're…
  • Chris Carlson:
    I think 52 million.
  • Ben Cowart:
    On product then you got your byproducts, asphalt and water that comes off the plant. On the -- John, on the base oil side for 2021, annualized basis.
  • John Strickland:
    16 million minimum, this year.
  • Ben Cowart:
    Yes. And we hope to see that move forward with these new improvements.
  • Michael Hoffman:
    And would you redirect Marrero VGO into Heartland or that's just too valuable as a low sulfur marine fuel?
  • Ben Cowart:
    No, there's a competing interest in that molecule and we haven't had to do that to-date. There's been other VGO supply that we've been working with. And in so far in the labs and in some trial runs, everything was pretty good. But we could, we obviously have plenty of VGO. So, it's just economic decision.
  • Michael Hoffman:
    And then can you tell us what the timing of your maintenance should be as far as quarters so you can flex that in and out of our quarterly modeling for cash utilization?
  • John Strickland:
    Yes, I'll just answer that. At Marrero, we will have a 10-day tour in the second quarter and then we'll have a mini four to five days planned maintenance in the whole quarter is there. And at Heartland, we will have a 10-day catalysts change in the second or third quarter. And then we'll have a seven day frontend tour in the fourth quarter.
  • Ben Cowart:
    10 weeks at Marrero and a little more than two weeks at Heartland for the year.
  • Michael Hoffman:
    So one of the things that we can think about is normal capacity at current spreads is going to produce the level of EBITDA you're talking about, and then we can factor in sort of the disruption. And how that play out but what's one to look like if you translate and then two, three and four? But is that a starting place on our modeling or point??
  • Ben Cowart:
    Absolutely, that's right.
  • Michael Hoffman:
    And then, is there anything you should remind us all about the cadence of activity compared to a year ago that we shouldn't forget?
  • Ben Cowart:
    No, we've been talking about a lot of organic growth in the business. I think this whole pandemic has been a really good window and an opportunity for us to dig deep into the business. We've made a lot of improvements across all our operations. We've had time to put a lot of new equipment on the road replacing some and adding new equipment. So our capacities and our operation are all in really good shape today. So, I believe that we're positioned well for organic growth on the investments and the asset capacity that we have and that's both from a process and from a collection standpoint.
  • Michael Hoffman:
    And then with the preferred share conversion, what is your ownership look like now on the common side? How do we think about who owns what?
  • Ben Cowart:
    As far as levels of ownership.
  • Michael Hoffman:
    Yes, percentage of ownership now that these preferred has converted into common vision? That that'll all end up in the market eventually, but I'm curious if you could share with us who are these large owners now?
  • Chris Carlson:
    I would have to direct you to the 13-F filings that came out recently and I mean the total share count, which was noted, is 49.9 million.
  • Michael Hoffman:
    And then what's left in prefers is?
  • Chris Carlson:
    There's 10 million left and preferred today. And again, there are still some converting, that we've talked to that haven't fully converted yet.
  • Michael Hoffman:
    Okay. So that was part B of this. So you would expect more the 10 to convert before we're done?
  • Chris Carlson:
    I would hope so, yes.
  • Michael Hoffman:
    And those who aren't what's the basis for not doing so?
  • Chris Carlson:
    I can't really speak to their basis for their decision.
  • Michael Hoffman:
    Okay. And then lastly, from our standpoint, you told us last year you were conducting a strategic review and all of the typical language including possible sales accounting blah, blah, blah. Where are we in the process of that review?
  • Ben Cowart:
    It's a continuation from the third quarter, Michael. We have several things that are now under review and we've got some outside help around that, but nothing that is ready to report on this call.
  • Operator:
    Your next question is coming from Eric Stein. Please announce your affiliations then pose your questions.
  • Eric Stein:
    Yes, with Craig-Hallum. Good morning, everyone. I'll just queue with the few questions here. Good morning. Maybe the first two just on collection -- on the collection inside, anything you can share as to what your ultimate goal is in terms of volumes on the collection side? Obviously, the trends been very good before COVID throughout COVID, but maybe what you think or where you think will be at exit in 2021?
  • Ben Cowart:
    Well, our focus for 2021 as a rule, there's some acquisition targets that we're looking at up in the Midwest region, but in the Gulf, we've made a significant investment in new equipment across the board from and additional branches. So, we believe that we will focus on organic growth, for the most part in the Gulf for 2021. I think, 9%, year-over-year during a pandemic is to me somewhat relative to the 15% to 20% year-over-year growth that we've experienced. We hope that we'll see those levels continue to materialize around our collection business. So, our team's done a great job to build out new customers and new volumes. And so, if the recovery of vehicle miles traveled happens in 2021, based on pre-pandemic levels, then we should be back into those double digit growth numbers in volume.
  • Eric Stine:
    Got it. And that puts, I guess, if I'm thinking about it correctly, mid-40 million, somewhere in that range?
  • Ben Cowart:
    Yes, I think that's right.
  • Eric Stine:
    Okay. And maybe just turning to the whole charge for oil and pay for oil dynamic. Just curious, I know that spread management has been a big focus of yours, but just given the recent increase in oil prices. What are you getting? Where does that stand today? And is there any pushback from the other side of the transaction just because of where oil has gone?
  • Ben Cowart:
    So far so good, I mean, we're still in a charge type of zip code in the collection business. There's obviously some pay for oils based on big generators are contracts that we have our head in place and then there's some free pickups. So, it's across the board, but I think the market seems to be tempered from a street level. Nobody's really gone hard to the market even though base oil prices, which is your biggest demand for use motor oil has increased materially. There seems to be good discipline in the market and we're playing play in the same way.
  • Eric Stine:
    Last question for me. Just on Myrtle Grove in the organic oils that had side of it. You mentioned the pre-treatment facility that you're thinking about, can just remind me what the CapEx requirement would be for that and maybe potential timing of that decision?
  • Ben Cowart:
    Yes, I think it's early, Eric, to look at the CapEx. It's a big play. So, I don't want to get a number out there that we're not able to stand behind. We've got an evaluation by a team internally to look at the different technologies and we're really early as far as putting the numbers, the CapEx numbers out there to that. So -- and it's going to, hopefully, in the next quarter, maybe the next quarter or two, we will have a lot of color on this as the work gets completed.
  • Operator:
    All right. Thank you. There are no more questions in queue.
  • Ben Cowart:
    Okay. Well, thank you, everybody, for joining us today on our call and we look forward to a continued dialogue here as the Company moves forward. In the interim, should you have any questions, please contact our Investor Relations team at ir@vertexenergy.com. So, thank you, everyone, for joining us today. This concludes our conference call.
  • Operator:
    Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

Other Vertex Energy, Inc. earnings call transcripts: