Vertex Energy, Inc. Announces Second Quarter 2019 Results

Total Direct UMO Collections Increased More than 20% Y/Y in 2Q19

Direct Collections Represented 42% of Total UMO Feedstock Supply in 2Q19

Announced JV with Tensile Capital with Potential to Materially Increase Access to Growth Capital

Extended Maturity on Asset-Based Term Loans with Lenders From 2020 to 2021

HOUSTON, TX / ACCESSWIRE / August 7, 2019 / Vertex Energy, Inc. (NASDAQ: VTNR, “Vertex” or the “Company”), a leading specialty refiner and marketer of high-quality hydrocarbon products, today announced financial results for the second quarter of 2019.

For the three months ended June 30, 2019, the Company reported revenue of $43.7 million, versus $46.9 million in the prior-year period. Vertex reported an operating loss of ($0.7) million in the second quarter of 2019, versus $3.0 million of operating income in the prior-year period. The Company reported a basic net loss available to common shareholders of ($1.4) million, or ($0.03) per basic share, in the second quarter of 2019, versus net income of $1.4 million, or $0.03 per basic share, in the second quarter of 2018. The Company reported Adjusted EBITDA of $1.5 million, in the second quarter of 2019, versus Adjusted EBITDA of $4.8 million, in the second quarter 2018 (described in greater detail below).

During the second quarter of 2018, the Company benefited from elevated realized margins, supported by a combination of high product prices and low used motor oil (UMO) feed costs, while in the second quarter of 2019, a combination of less favorable realized margins and lower metals prices in the Company’s recovery segment contributed to a year-over-year decline in profitability. The Company estimates the decline in metals prices contributed to reduced gross margin by approximately $1 million in the second quarter of 2019.

During the second quarter of 2019, both the Marrero, Louisiana refinery (“Marrero”) and the Heartland refinery operated near peak nameplate capacity, showing strong demand for the Company’s specialty petroleum-based products. Including nine days of planned maintenance in June, Heartland increased total refinery throughputs by 5% during the second quarter 2019, when compared to the prior-year period, given improved productivity resulting from planned maintenance. In July 2019, Marrero completed 21 days of planned maintenance. Both the Marrero and Heartland refineries are currently operating near peak rates.

Direct collections of UMO increased 21% in the second quarter of 2019, when compared to the prior-year’s period. Direct UMO collections represented approximately 42% of overall feedstock processed at the Company’s refineries in the second quarter of 2019, versus 37% in the second quarter of 2018, with the remaining feedstock being sourced from third-party UMO suppliers.

As announced on July 31, 2019, Vertex has entered into a joint venture with Tensile Capital Management LLC, an investment firm (“Tensile”). Under the terms of the agreements, Vertex has secured funding (a) which it intends to use to accelerate the development of the currently idled site in Belle Chase, LA (“Myrtle Grove”) and (b) which in the event Tensile exercises an option that expires in June 2020, is anticipated to be sufficient for the full development of the Heartland business. Subject to a successful pilot program that is expected to reach completion by year-end 2019, Vertex will receive approximately $13.5 million of non-recourse funding that it intends to use for debt reduction, investment in organic UMO collections growth, and the targeted acquisition of third-party UMO collections operations.

Additionally, in connection with the Tensile transaction, the Company’s senior lenders agreed to amend and extend the maturity date of Company’s existing asset-based term loans from February 1, 2020 to February 1, 2021.

Management Commentary

“Our operations performed exceptionally well during the second quarter, supported by year-over-year growth in cost-advantaged direct collections and strong utilization at our Marrero and Heartland refineries, both of which operated near peak capacity during the period,” stated Benjamin P. Cowart, President and CEO of Vertex.

“We generated positive Adjusted EBITDA during the second quarter and continue to expect improved momentum entering the second half of 2019. Having completed planned maintenance at Heartland and Marrero in June and July, respectively, we anticipate both refineries to operate at peak rates as we finish out the year and into 2020.”

“The recent announcement of our joint venture with Tensile Capital has the potential to materially improve the long-term profitability of Vertex. Under the terms of the agreement, subject to a successful pilot test, Tensile will provide up to $35 million of growth capital that may be used to repay indebtedness, accelerate the development of our high-purity base oil operations, while also providing Vertex a liquidity event that will enable us to expand our UMO collections capabilities, among other growth opportunities”, continued Cowart.

“As of June 30, 2019, we had cash and available liquidity of $2.9 million,” stated Cowart. “Pro-forma for the successful closing of both phases of the Tensile transaction at year-end 2019, we anticipate Vertex will add more than $15 million in liquidity to the balance sheet.”

Segment Performance

Black Oil Segment. The Company’s Black Oil Segment collects and purchases UMO directly from third-party generators, aggregates UMO from an established network of local and regional collectors and sells refined finished products to customers for use as lubricants or fuels. During the second quarter 2019, segment revenue declined 1% on a year-over-year basis to $37.9 million, while gross profit declined 25% to $6.5 million, due to compressed spreads related to lower finished product values, increased feedstock costs, together with planned maintenance at our Heartland facility during the second quarter.

Refining & Marketing Segment. The Company’s Refining & Marketing Segment aggregates and manages the re-refinement of hydrocarbon streams in the form of petroleum distillates, other chemical products and petroleum co-products, and sells the re-refined products to end customers. During the second quarter 2019, segment revenue declined on a year-over-year basis by 25% to $3.3 million, while gross profit increased 60% on a year-over-year basis to $0.6 million due to a reduction in low-margin business within the segment, coupled with improved spreads on existing business.

Recovery Segment. The Company’s Recovery Segment includes a generator solutions company for the proper recovery and management of hydrocarbon streams, the sales and marketing of Group III base oils and other petroleum-based products, together with the recovery and processing of metals. During the second quarter 2019, segment revenue declined 39% on a year-over-year basis to $2.4 million, while gross profit declined to $0.1 million versus $1.0 million in the prior year’s period, due to less favorable pricing on metals.

Second Quarter 2019 Conference Call and Webcast

A conference call will be held on August 7, 2019 at 9:00 AM ET to review the Company’s financial results, discuss recent events and conduct a question-and-answer session. A webcast of the conference call and accompanying presentation materials will be available in the Investor Relations section of the Company’s website at www.vertexenergy.com. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register, download, and install any necessary audio software.

To participate in the live teleconference:

Domestic Live: 844-369-8770

To listen to a replay of the teleconference, which will be available through August 31, 2019:

Domestic Replay: 877-481-4010
Conference ID: 50785

About Vertex Energy Inc.

Houston-based Vertex Energy, Inc. (NASDAQ: VTNR) is a specialty refiner of alternative feedstocks and marketer of high-purity petroleum products. Vertex is one of the largest processors of used motor oil in the U.S., with operations located in Houston and Port Arthur (TX), Marrero (LA) and Heartland (OH). Vertex also co-owns a facility, Myrtle Grove, located on a 41-acre industrial complex along the Gulf Coast in Belle Chasse, LA, with existing hydro-processing and plant infrastructure assets, that include nine million gallons of storage. The Company has built a reputation as a key supplier of Group II+ and Group III base oils to the lubricant manufacturing industry throughout North America.

Cautionary Statement Forward-Looking Statements

This press release may contain forward-looking statements, including information about management’s view of Vertex Energy’s future expectations, plans and prospects, within the safe harbor provisions under The Private Securities Litigation Reform Act of 1995 (the “Act”). In particular, when used in the preceding discussion, the words “believes,” “hopes,” “expects,” “intends,” “plans,” “anticipates,” or “may,” and similar conditional expressions are intended to identify forward-looking statements within the meaning of the Act, and are subject to the safe harbor created by the Act. Any statements made in this news release other than those of historical fact, about an action, event or development, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause the results of Vertex Energy, its divisions and concepts to be materially different than those expressed or implied in such statements. These risk factors and others are included from time to time in documents Vertex Energy files with the Securities and Exchange Commission, including but not limited to, its Form 10-Ks, Form 10-Qs and Form 8-Ks. Other unknown or unpredictable factors also could have material adverse effects on Vertex Energy’s future results. The forward-looking statements included in this press release are made only as of the date hereof. Vertex Energy cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, Vertex Energy undertakes no obligation to update these statements after the date of this release, except as required by law, and takes no obligation to update or correct information prepared by third parties that are not paid for by Vertex Energy.

Investor/Media Relations Contact

Noel Ryan, IRC
720.778.2415
IR@vertexenergy.com

Reconciliation of Net Income (Loss) attributable to Vertex Energy, Inc., to Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) and Adjusted EBITDA*

For the Three Months Ended

For the Trailing Twelve Months Ended

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

Net (loss) income

attributable to Vertex Energy, Inc.

$
(427,436
)

$
2,530,068

$
(7,880,213
)

$
(3,097,873
)

Add (deduct):

Interest Income

(1,918
)

(659
)

(1,918
)

(2,178
)

Interest Expense

738,972

847,456

3,128,659

3,178,098

Depreciation and amortization

1,780,890

1,733,076

7,081,738

6,825,409

EBITDA*

2,090,508

5,109,941

2,328,266

6,903,456

Add (deduct):

Loss (gain) on change in value of derivative warrant liability

(746,017
)

(475,913
)

239,523

(859,305
)

Stock-Based compensation

171,002

183,750

644,180

676,473

Adjusted EBITDA *

$
1,515,493

$
4,817,778

$
3,211,969

$
6,720,624

Adjusted Earnings Per Share (EPS)

$
0.04

$
0.14

$
0.09

$
0.21

Shares used in computing EPS

40,294,870

33,300,456

38,913,700

32,917,415

* EBITDA and Adjusted EBITDA are non-GAAP financial measures. These measurements are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance.

EBITDA represents net income before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before stock-based compensation expense and gain (loss) on change in value of derivative warrant liability. EBITDA and Adjusted EBITDA are presented because we believe they provide additional useful information to investors due to the various noncash items during the period. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our operating results as reported under GAAP. Some of these limitations are:

EBITDA and Adjusted EBITDA do not reflect cash expenditures, or future requirements for capital expenditures, or contractual commitments;
EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, working capital needs;
EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debt or cash income tax payments;
Although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
Other companies in this industry may calculate EBITDA and Adjusted EBITDA differently than Vertex Energy does, limiting its usefulness as a comparative measure; and
Trailing Twelve Months June 30, 2019 reflects amounts for the Fiscal Year Ended 2018 plus Q1 and Q2 2019 minus Q1 and Q2 2018. Trailing Twelve Months June 30, 2018 reflects amounts for the Fiscal Year Ended 2017 plus Q1 and Q2 2018 minus Q1 and Q2 2017.

VERTEX ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

June 30,
2019

December 31,
2019

ASSETS

Current assets

Cash and cash equivalents

$
498,219

$
1,249,831

Restricted cash

100,007

1,600,000

Accounts receivable, net

11,500,507

9,027,990

Federal income tax receivable

205,818

137,212

Inventory

5,752,583

8,091,397

Derivative commodity asset

–

695,941

Prepaid expenses

1,494,198

2,740,541

Total current assets

19,551,332

23,542,912

Noncurrent assets

Fixed assets, at cost

68,950,111

66,762,388

Less accumulated depreciation

(22,243,716
)

(19,874,896
)

Fixed assets, net

46,706,395

46,887,492

Finance lease right-of-use assets

957,812

397,515

Operating lease right-of use assets

36,911,345

–

Intangible assets, net

11,666,613

12,578,519

Federal income tax receivable

68,605

137,211

Other assets

616,759

TOTAL ASSETS

$
116,478,861

$
84,160,408

LIABILITIES, TEMPORARY EQUITY, AND EQUITY

Current liabilities

Accounts payable

$
8,273,479

$
8,791,529

Accrued expenses

2,347,998

2,535,347

Dividends payable

412,875

403,002

Finance lease liability-current

210,972

95,857

Operating lease liability-current

6,143,000

–

Current portion of long-term debt, net of unamortized finance costs

658,971

1,325,240

Derivative commodity liability

108,557

–

Revolving note

5,079,887

3,844,636

Total current liabilities

23,235,739

16,995,611

Long-term liabilities

Long-term debt, net of unamortized finance costs

14,000,000

14,402,179

Finance lease liability-long-term

720,602

276,355

Operating lease liability-long-term

30,768,345

–

Contingent consideration

–

15,564

Derivative warrant liability

2,440,769

1,481,692

Total liabilities

71,165,455

33,171,401

COMMITMENTS AND CONTINGENCIES (Note 3)

–

TEMPORARY EQUITY

Series B Convertible Preferred Stock, $0.001 par value per share;
10,000,000 shares designated, 3,713,794 and 3,604,827 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively with a liquidation preference of $11,512,761 and $11,174,964 at June 30, 2019 and December 31, 2018, respectively.

9,904,054

8,900,208

Series B1 Convertible Preferred Stock, $0.001 par value per share;
17,000,000 shares designated, 10,264,001 and 10,057,597 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively with a liquidation preference of $16,011,842 and $15,689,851 at June 30, 2019 and December 31, 2018, respectively.

14,029,297

13,279,755

Total Temporary Equity

23,933,351

22,179,963

EQUITY

50,000,000 of total Preferred shares authorized:

Series A Convertible Preferred Stock, $0.001 par value;
5,000,000 shares designated, 419,859 and 419,859 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively with a liquidation preference of $625,590 and $625,590 at June 30, 2019 and December 31, 2018, respectively.

420

Common stock, $0.001 par value per share;
750,000,000 shares authorized; 40,346,906 and 40,174,821 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively.

40,347

40,175

Additional paid-in capital

75,599,525

75,131,122

Accumulated deficit

(55,105,156
)

(47,800,886
)

Total Vertex Energy, Inc. stockholders’ equity

20,535,136

27,370,831

Non-controlling interest

844,919

1,438,213

Total Equity

21,380,055

28,809,044

TOTAL LIABILITIES, TEMPORARY EQUITY, AND EQUITY

$
116,478,861

$
84,160,408

VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Revenues

43,657,292

46,917,770

82,978,004

88,285,965

Cost of revenues (exclusive of depreciation and amortization shown separately below)

36,515,421

36,796,258

71,359,770

71,841,409

Gross profit

7,141,871

10,121,512

11,618,234

16,444,556

Operating expenses:

Selling, general and administrative expenses

6,028,859

5,364,591

11,376,600

11,010,033

Depreciation and amortization

1,780,890

1,733,076

3,517,903

3,427,175

Total operating expenses

7,809,749

7,097,667

14,894,503

14,437,208

Income (loss) from operations

(667,878

)

3,023,845

(3,276,269

)

2,007,348

Other income (expense):

Interest income

1,918

659

1,918

659

Gain on sale of assets

29,150

8,843

31,443

51,523

Gain (loss) on change in value of derivative warrant liability

746,017

475,913

(959,077

)

44,162

Interest expense

(738,972

)

(847,456

)

(1,496,775

)

(1,649,971

)

Total other income (expense)

38,113

(362,041

)

(2,422,491

)

(1,553,627

)

Income (loss) before income tax

(629,765

)

2,661,804

(5,698,760

)

453,721

Income tax benefit (expense)

–

Net income (loss)

(629,765

)

2,661,804

(5,698,760

)

453,721

Net income (loss) attributable to non-controlling interest

(202,329

)

131,736

(307,760

)

182,275

Net income (loss) attributable to Vertex Energy, Inc.

(427,436

)

2,530,068

(5,391,000

)

271,446

Accretion of discount on Series B and B1 Preferred Stock

(532,925

)

(556,214

)

(1,093,600

)

(1,198,504

)

Dividends on Series B and B1 Preferred Stock

(412,875

)

(534,680

)

(819,670

)

(1,089,597

)

Net income (loss) available to common shareholders

(1,373,236

)

1,439,174

(7,304,270

)

(2,016,655

)

Income (loss) per common share

Basic

(0.03

)

0.03

(0.18

)

(0.06

)

Diluted

(0.03

)

0.03

(0.18

)

(0.06

)

Shares used in computing earnings per share

Basic

40,294,870

33,300,456

40,245,671

33,182,748

Diluted

40,294,870

37,013,651

40,245,671

33,182,748

VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(UNAUDITED)

Six Months Ended June 30, 2019

Common Stock

Series A Preferred

$.001 Par

$0.001 Par

Additional Paid-In Capital

Retained Earnings

Non-controlling Interest

Total Equity

Balance on January 1, 2019

40,174,821

$
40,175

419,859

$
420

$
75,131,122

$
(47,800,886
)

$
1,438,213

$
28,809,044

Share based compensation expense, total

–

143,063

–

143,063

Conversion of Series B1 Preferred stock to common

96,160

–

149,914

(30,242
)

–

119,768

Dividends on Series B and B1

–

(406,795
)

–

(406,795
)

Accretion of discount on Series B and B1

–

(530,433
)

–

(530,433
)

Net income (loss)

–

(4,963,564
)

(105,431
)

(5,068,995
)

Balance on March 31, 2019

40,270,981

$
40,271

419,859

$
420

$
75,424,099

$
(53,731,920
)

$
1,332,782

$
23,065,652

Exercise of options to common

75,925

–

4,424

–

4,500

Share based compensation expense, total

–

171,002

–

171,002

Dividends on Series B and B1

–

(412,875
)

–

(412,875
)

Accretion of discount on Series B and B1

–

(532,925
)

–

(532,925
)

VRM LA distribution

–

(285,534
)

Net income (loss)

–

(427,436
)

(202,329
)

(629,765
)

Balance on June 30, 2019

40,346,906

$
40,347

419,859

$
420

$
75,599,525

$
(55,105,156
)

$
844,919

$
21,380,055

Six Months Ended June 30, 2018

Common Stock

Series A Preferred

Series C Preferred

$.001 Par

$0.001 Par

Additional Paid-In Capital

Retained Earnings

Non-controlling Interest

Total Equity

Balance on January 1, 2018

32,658,176

$
32,658

453,567

$
454

31,568

$
32

$
67,768,509

$
(39,816,300
)

$
399,005

$
28,384,358

Share based compensation expense, total

–

145,971

–

145,971

Conversion of Series B1 Preferred stock to common

500,000

500

–

779,500

(184,437
)

–

595,563

Dividends on Series B and B1

–

(554,917
)

–

(554,917
)

Accretion of discount on Series B and B1

–

(457,853
)

–

(457,853
)

Net income (loss)

–

(2,258,622
)

50,539

(2,208,083
)

Balance on March 31, 2018

33,158,176

$
33,158

453,567

$
454

31,568

$
32

$
68,693,980

$
(43,272,129
)

$
449,544

$
25,905,039

Exercise of options to common

241

–

Share based compensation expense, total

–

183,750

–

183,750

Conversion of Series A Preferred stock to common

33,708

(33,708
)

(34
)

–

Conversion of Series B Preferred stock to common

32,149

–

99,629

(36,700
)

–

62,962

Conversion of Series B1 Preferred stock to common

133,264

133

–

207,759

(48,689
)

–

159,203

Dividends on Series B and B1

–

(534,680
)

–

(534,680
)

Accretion of discount on Series B and B1

–

(470,825
)

–

(470,825
)

Net income

–

2,530,068

131,736

2,661,804

Balance on June 30, 2018

33,357,538

$
33,358

419,859

$
420

31,568

$
32

$
69,185,118

$
(41,832,955
)

$
581,280

$
27,967,253

VERTEX ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (UNAUDITED)

Six Months Ended

June 30, 2019

June 30, 2018

Cash flows from operating activities

Net income (loss)

$
(5,698,760
)

$
453,721

Adjustments to reconcile net income (loss) to cash provided by operating activities

Stock based compensation expense

314,065

329,721

Depreciation and amortization

3,517,903

3,427,175

Gain on sale of assets

(31,443
)

(51,523
)

Contingent consideration reduction

(15,564
)

–

Bad debt recovery

(360,926
)

–

Increase in fair value of derivative warrant liability

959,077

(44,162
)

Loss on commodity derivative contracts

1,069,778

1,212,087

Net cash settlements on commodity derivatives

(967,708
)

(1,393,970
)

Amortization of debt discount and deferred costs

286,954

290,746

Changes in operating assets and liabilities

Accounts receivable

(2,111,591
)

(1,300,384
)

Inventory

2,338,814

(2,156,895
)

Prepaid expenses

1,948,771

687,156

Accounts payable

(518,050
)

2,575,354

Accrued expenses

(187,349
)

(628,120
)

Other assets

–

(205,942
)

Net cash provided by operating activities

543,971

3,194,964

Cash flows from investing activities

Acquisition of SES

–

(269,823
)

Purchase of fixed assets

(2,419,599
)

(1,570,094
)

Proceeds from sale of fixed assets

86,846

85,230

Net cash used in investing activities

(2,332,753
)

(1,754,687
)

Cash flows from financing activities

Payments on finance leases

(61,638
)

(10,797
)

Proceeds from exercise of stock options

4,500

–

Distribution VRM LA

(285,534
)

–

Line of credit (payments) proceeds, net

1,235,251

(816,797
)

Proceeds from note payable

187,501

1,667,426

Payments on note payable

(1,542,903
)

(1,667,066
)

Net cash used in financing activities

(462,823
)

(827,234
)

Net change in cash, cash equivalents and restricted cash

(2,251,605
)

613,043

Cash, cash equivalents, and restricted cash at beginning of the period

2,849,831

1,105,787

Cash, cash equivalents, and restricted cash at end of period

$
598,226

$
1,718,830

SUPPLEMENTAL INFORMATION

Cash paid for interest

$
1,221,363

$
1,126,362

Cash paid for taxes

$
–

NON-CASH INVESTING AND FINANCING TRANSACTIONS

Conversion of Series A Preferred Stock into common stock

$
–

$
34

Conversion of Series B Preferred Stock into common stock

$
–

$
99,629

Conversion of Series B1 Preferred Stock into common stock

$
149,914

$
987,259

Accretion of discount on Series B and B1 Preferred Stock

$
1,093,600

$
1,198,504

Dividends-in-kind accrued on Series B and B1 Preferred Stock

$
819,670

$
1,089,597

Equipment acquired under finance leases

$
621,000

$
450,098

SOURCE: Vertex Energy, Inc.

ReleaseID: 554954

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