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Vertex Energy Inc. (VTNR)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 revenue was $1.018B, diluted EPS $0.17, and Adjusted EBITDA $51.5M, with gross profit up to $85.0M vs $55.8M YoY; results included a $9.4M inventory valuation adjustment .
  • Conventional refining outperformed guidance: throughput 80,171 bpd (107% of capacity) and fuel gross margin per barrel $17.56 vs $8.03 in Q2; finished product yield rose to 67% from 61% in Q2, reflecting optimization initiatives .
  • Renewable diesel Phase I throughput reached 5,397 bpd (67.5% utilization) with 97.8% yield, though RD posted a gross loss of $(8.5)M; LCFS default credits expected to contribute in Q4 as feedstock pathway filings progress .
  • Management entered fixed-price gasoline hedges covering ~27% of Q4 production (weighted average ~$13/bbl), de-risking seasonally weak gasoline margins and supporting Q4 outlook .
  • S&P Global consensus estimates were unavailable for VTNR due to a CIQ mapping issue; estimate comparisons are therefore not provided (attempted via SPGI) [SpgiEstimatesError].

What Went Well and What Went Wrong

  • What Went Well

    • Conventional operations exceeded expectations: throughput 80,171 bpd and fuel gross margin $129.5M ($17.56/bbl), with finished product yield at 67% vs 61% in Q2 .
    • Management proactively secured pricing for ~27% of Q4 gasoline production to mitigate seasonal weakness: “secured attractive pricing for approximately 27% of our gasoline production during the seasonally weak fourth quarter” .
    • Strategic progress on RD: Phase I capacity validated, high product yield (97.8%), and alternative feedstock LCFS pathway filings advancing (Soy, DCO, Canola, Tallow), with default LCFS credits expected to contribute in Q4 .

  • What Went Wrong

    • RD economics remained a headwind in Q3: RD operations generated a gross loss of $(8.5)M and modest fuel gross margin of $2.4M ($4.78/bbl), reflecting early-stage feedstock optimization and market conditions .
    • Inventory valuation adjustment of $9.4M weighed on results; RIN expense of $7.1M impacted conventional fuel economics .
    • Interest expense remained elevated at $13.5M in Q3; although leverage improved to 1.3x TTM Adjusted EBITDA, debt service is a continuing focus .

Financial Results

MetricQ1 2023Q2 2023Q3 2023
Revenue ($USD Millions)$691.1 $734.9 $1,018.4
Diluted EPS ($)$0.68 $(1.03) $0.17
Gross Profit ($USD Millions)$67.5 $(1.4) $85.0
Adjusted EBITDA ($USD Millions)$34.9 $(34.2) $51.5
Segment (Q3 2023)Revenues ($USD Thousands)Gross Profit ($USD Thousands)Income (Loss) from Operations ($USD Thousands)
Refining & Marketing$978,712 $78,573 $46,259
Black Oil & Recovery$44,327 $6,389 $1,120
Corporate and Eliminations$(4,632) $7 $(6,580)
Total$1,018,407 $84,969 $40,799
KPIs (Mobile Refinery)Q1 2023Q2 2023Q3 2023
Conventional Throughput (bpd)71,328 76,330 80,171
Conventional Capacity Utilization (%)95.1% 101.8% 106.9%
Fuel Gross Margin ($USD Millions)$103.8 $55.7 $129.5
Fuel Gross Margin ($/bbl)$16.17 $8.03 $17.56
Direct Opex ($/bbl)$3.84 $3.35 $2.40
Finished Fuel % of Production62.3% 61.2% 67.0%
RD Throughput (bpd)— 2,490 5,397
RD Utilization (%)— 31.1% 67.5%
RD Fuel Gross Margin ($/bbl)— $(13.66) $4.78
RD Production Yield (%)— 88.7% 97.8%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Conventional Throughput (Mbpd)Q3 202374–77 (Aug 9) ~80 (Oct 13) Raised
Finished Products (%)Q3 202359–63% (Aug 9) 65–67% (Oct 13) Raised
Direct Operating Expense ($/bbl)Q3 2023$3.60–$3.80 (Aug 9) $3.70–$3.80 (Oct 13) Maintained (tightened range)
Capital Expenditures ($MM)Q3 2023$20–$25 (Aug 9) $21–$23 (Oct 13) Narrowed
Total Throughput (Mbpd)Q4 2023—72–77 New
Conventional Throughput (Mbpd)Q4 2023—68–71 New
Finished Products (%)Q4 2023—64–68% New
RD Throughput (Mbpd)Q4 2023—4–6 New
RD Yield (%)Q4 2023—97–98% New
Direct Operating Expense ($/bbl)Q4 2023—$3.95–$4.20 New
Capital Expenditures ($MM)Q4 2023—$15–$20 New

Earnings Call Themes & Trends

Note: Q3 2023 earnings call transcript could not be retrieved due to a document error; themes are synthesized from the Q3 press release and presentation.

TopicPrevious Mentions (Q2 & Q1)Current Period (Q3 2023)Trend
RD startup and feedstock strategyQ2: RD startup completed; accelerating advantaged feedstocks due to soybean oil economics; one-time startup costs ~$20M . Q1: Mechanical completion achieved; startup delayed due to feed pump failure .RD throughput 5,397 bpd; high yield; alternative feedstock LCFS pathway filings (Soy, DCO, Canola, Tallow) and default LCFS credits expected to contribute in Q4 .Improving operational momentum; margin progress contingent on feedstock mix and LCFS crediting.
Conventional capture and yield optimizationQ1: 51% capture; finished products 62% . Q2: Capture compressed; finished products 61% .Fuel gross margin per barrel rebounded to $17.56; finished products 67%; throughput above guidance .Positive inflection vs Q2.
Supply chain/feedstock procurementQ2: Disruption increased LLS differentials and costs .Conventional feed procurement strengthened; throughput/yield above prior outlook .Stabilizing/improving.
Hedging/commodity riskQ1–Q2: Limited hedging; exposure to spreads .Hedged ~27% of Q4 gasoline at ~$13/bbl fixed; detailed swap volumes/prices .More proactive risk management.
Balance sheet/leverageQ2: Net leverage 3.6x; convertible exchange reduced notes .Net leverage improved to ~1.3x; net long-term debt $163M; cash $79.3M .Improving leverage profile.

Management Commentary

  • “Favorable commodity prices... presented an opportunity for our risk management team to secure attractive pricing for approximately 27% of our gasoline production during the seasonally weak fourth quarter” — Benjamin P. Cowart, CEO .
  • “We continue to advance our alternative feedstock strategy for optimization of our renewable diesel operations... actively assessing strategic options related to this asset... to add liquidity and greater financial flexibility” — CEO .
  • “Throughput volumes... expected to be approximately 80,000 bpd... Finished fuel products... 65% to 67% of total production... reflecting the successful implementation of a facility-wide yield optimization initiative” — Operational update .

Q&A Highlights

Note: Full Q3 call transcript was unavailable; highlights reflect clarifications in the press release and presentation.

  • Hedging strategy: fixed-price swaps executed for ~27% of expected Q4 gasoline production with weighted average ~$13/bbl to mitigate seasonal weakness .
  • RD pathway/LCFS: default LCFS credits expected to apply to Q3–Q4 volumes; proprietary CI filings for Soy, DCO, Canola, Tallow underway to improve credit value .
  • Operations/outlook: planned maintenance and pitstop on Crude Unit #1 drive lower conventional throughput in Q4 (68–71 Mbpd), with finished products at 64–68% and DOpex $3.95–$4.20/bbl .
  • Balance sheet: continued priority to reduce high-interest term loan and remaining convertible notes; net leverage improved to 1.3x TTM Adjusted EBITDA .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for Q3 2023 EPS and revenue was not available for VTNR due to a CIQ mapping issue; therefore, no beat/miss analysis vs consensus is provided [SpgiEstimatesError]. Values would ordinarily be sourced from S&P Global.

Key Takeaways for Investors

  • Conventional refining performance rebounded: higher throughput, improved product yield, and stronger fuel gross margin per barrel vs Q2 — supportive for near-term cash generation .
  • RD operations are scaling with high yields; margin uplift hinges on feedstock mix and LCFS credit progression; default credits expected to contribute in Q4 with proprietary pathways pending .
  • Proactive commodity risk management (27% gasoline hedged for Q4) should dampen seasonal margin volatility — a near-term stock driver .
  • Leverage and liquidity improved (net leverage ~1.3x; cash $79.3M; net long-term debt $163.0M), creating optionality for debt reduction and strategic actions on RD .
  • Q4 guidance embeds maintenance downtime; watch execution against throughput (72–77 Mbpd total) and DOpex ($3.95–$4.20/bbl) targets to gauge operational discipline .
  • Inventory valuation adjustments and RIN expense remain sensitivities; continued optimization and LCFS pathway approvals can mitigate drag .
  • Absent published consensus, monitor sell-side revisions post-Q3 for shifts in 2024 EBITDA assumptions tied to RD pathway progress and crack spread normalization .