Summary
- Vertex Energy reported 2020 second quarter results in early August. Revenue in its primary segment declined 70% while revenue in the remaining two segments improved.
- The company also shared it is evaluating the potential to organically grow by collecting and recycling other automotive waste streams such as used oil filters and used antifreeze.
- In the meantime, the UMO re-refiner is facing a spread between cost and pricing below its historical average. As such, it may well be forced to consider a reverse split.
- Despite its challenges, I'm not inclined to bet against the company in the long run. Like the shape-shifters from the Twilight Saga, it tends to protect its business with the fervor of a wolf.
The transformation of shape-shifters in the mythical Twilight Saga is triggered by the need for protection. In the real world, it appears Vertex Energy (VTNR) may be a bit of a shape-shifter, protecting its business with the fervor of a wolf.
Vertex Energy is a UMO (used motor oil) re-refiner. It spent much of the past decade expanding its physical presence and "high-grading" its product offerings. Between these endeavors and the meltdown of oil prices, the company executed several arduous maneuvers and did so quite successfully.
Then, along came the pandemic. Rather than freeze in a storm of vexation, the seasoned Vertex Energy tackled the next opportunity to shift its shape.
Vertex continues to evaluate targeted organic growth opportunities designed to improve its utilization of existing, owned assets. During the second quarter, the Company invested in several initiatives designed to grow its market presence as a collector and recycler of used automotive waste streams. (emphasis added)
2020 Second Quarter Results
Vertex Energy reported 2020 second quarter results on August 11th, 2020. Reacting to the economic shutdown resulting from the pandemic, the company took the opportunity to take one of its refineries offline for extended maintenance during the quarter. Between this intentional shutdown and the impact of the economic shutdown and subsequent reduction of available used motor oil, Vertex Energy's revenues fell over 50% year-over-year from 43.7 million in the second quarter of 2019 to $21.4 million.
For some time, Vertex Energy has purposely been expanding its street collection capacities. Used motor oil collected directly by the company is less expensive as a feedstock as compared to purchased UMO from third-party collectors. Still, in the 2020 second quarter, Vertex Energy's street collections were down 21%. Because production volume fell a total 45% and pricing was lower in the segment, revenue in Vertex's primary division, the Black Oil segment, declined 70% from $37.9 million in 2019 to $11.5 million in the 2020 second quarter. The segment's net loss for the quarter topped $6.5 million.
Revenue in its other two segments, Refining & Marketing and Recovery, actually increased year-over-year.
Volume in the Refining & Marketing segment was down year-over-year by 18%. However, being an active acquirer, Vertex purchased Alabama-headquartered Crystal Energy for $1.82 million on June 1st. As a wholesale distributor of motor fuels including gasoline, blended gasoline and diesel, Crystal Energy's sales contributed to revenue in the Refining & Marketing segment. In the 2019 second quarter, revenue in the segment was $3.28 million. Primarily due to the Crystal Energy contribution in June, revenue in the quarter increased to $6.3 million.
