Investor Presentation May-June 2019 Disclaimer This document may - - PowerPoint PPT Presentation

investor presentation
SMART_READER_LITE
LIVE PREVIEW

Investor Presentation May-June 2019 Disclaimer This document may - - PowerPoint PPT Presentation

Investor Presentation May-June 2019 Disclaimer This document may contain forward-looking statements including words such as may, can, could, should, predict, aim, potential, continue,


slide-1
SLIDE 1

Investor Presentation

May-June 2019

slide-2
SLIDE 2

Disclaimer

This document may contain forward-looking statements including words such as “may,” “can,” “could,” “should,” “predict,” “aim,” “potential,” “continue,” “opportunity,” “intend,” “goal,” “estimate,” “expect,” “expectations,” “project,” “projections,” “plans,” “anticipates,” “believe,” “think,” “confident,” “scheduled,” or similar expressions, as well as information about management’s view of Vertex Energy’s future expectations, plans and prospects, within the safe harbor provisions under Private Securities Litigation Reform Act of 1995. 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, available at the SEC’s website at www.sec.gov. Other unknown or unpredictable factors also could have material adverse effects on Vertex Energy’s future results. The forward-looking statements included in this presentation 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 presentation, except as required by law, and also undertakes no obligation to update or correct information prepared by third parties that are not paid for by Vertex Energy. Industry Information Information regarding market and industry statistics contained in this presentation is based on information available to us that we believe is

  • accurate. It is generally based on publications that are not produced for investment or economic analysis.

2

slide-3
SLIDE 3

Corporate Overview

Vertically-Integrated Specialty Refiner of Alternative Feedstocks

3

> TTM Collections = ~32 mm gal > ~100 collections trucks > Operations in 15 states > Internal collections strategy

Collections Operations

> TTM production = 84.4 mm gal > Marrero (LA) - Marine Fuel production > Heartland (OH) - Base oil production > Baytown (TX) – Houston ship channel terminal

Refining Operations Executive Summary

> Established producer of petroleum-based specialty products from recycled used motor oils and petrochemical streams > Own and operate one of the largest independent used motor oil collections (UMO) operations in the United States(1) > Produce/market IMO-compliant marine fuels, Group II & III Base Oils and fuel blend stocks for industrial applications > Proven track record of safe, reliable operations that optimize utilization at owned production facilities > Multi-year improvement in Adj. EBITDA and Free Cash Flow resulting in reduced net leverage > Major capital projects offer potential to increase production of high-value specialty products – IMO and high-purity base oils play > Experienced management team w/ high insider ownership

(1) Vertex Energy owns/operates one of the largest used motor oil (UMO) collection and aggregation networks in the United States

slide-4
SLIDE 4

Key Financial Metrics

Trailing-Three Year Performance

4 Total Revenues ($MM) Total Gross Profit ($MM) Adjusted EBITDA ($MM) Net Debt / TTM Adjusted EBITDA

$145.5 $180.7 $152.1 $178.7 2017 2018 TTM 1Q18 TTM 1Q19 $21.3 $29.4 $23.4 $27.6 2017 2018 TTM 1Q18 TTM 1Q19 $2.0 $8.0 $2.1 $6.5 2017 2018 TTM 1Q18 TTM 1Q19 12.5 x 2.0 x 7.7 x 2.3 x 2017 2018 TTM 1Q18 TTM 1Q19

slide-5
SLIDE 5

Used Motor Oil Recycling Value Chain

Direct and Third-Party UMO Collections Used As Refining Feedstock

5

UMO Generators Collectors Aggregators Processors Consumers Oil Change Shops, Car Dealerships 1.3 billion gal/yr U.S. – fragmented industry Collect UMO to self- process or for sale Refined into higher-value finished products Consume middle distillates, base oils

slide-6
SLIDE 6

Our Strategic Focus

Path Toward Profitable Growth Through The Cycle

6

> Direct collections are significantly cost- advantaged over third-party purchased collections > By increasing direct collections as % of total collections, we significantly reduce feedstock costs

Drive Direct Collections Growth

> Safe, reliable

  • perations drive

profitable growth > Marrero and Heartland operating near peak utilization > Focused on reducing feedstock overhead and reducing direct OPEX per gal sold

Optimize Refining Asset Base

> Shift from production

  • f commodity

intermediates toward higher value finished products > Be recognized as leading producer of IMO compliant marine fuel and high- purity Group II and III base oils

High-Grade Production Slate

> Identify high-return

  • rganic growth

projects within existing asset base > Partner with one or more venture investors on a project by project basis to support project CAPEX

Growth CAPEX / Private Funding

y

> Generate Adj. EBITDA growth – use free cash flow to maintain conservative net leverage profile > Continue to diversify EBITDA across end- markets, geographies and customers

Profitable Growth Through Cycle

slide-7
SLIDE 7

Leader In The Used Motor Oil Collections Industry

Focused On Growing Cost-Advantaged Direct Collections

7 Grew Total UMO Collections 17% TTM 1Q19

Gallons In Millions

Growing Cost-Advantaged Direct Collections

Direct Collections as % of Total Volumes Processed

20.3 26.2 30.6 27.2 31.8 2016 2017 2018 TTM 1Q18 TTM 1Q19 25% 27% 30% 28% 31% 2016 2017 2018 TTM 1Q18 TTM 1Q19

Collections Operations Overview

> 1.3 billion gallons of UMO generated annually in the U.S., of which 1.1 billion are collected for repurposing > Collected UMO is used as feed in burners, re-refineries and as a blend stock for higher value fuels > TTM 1Q19, we collected 31.8 million gallons of UMO, an increase of 17% y/y > Our focus remains on growing cost advantaged direct collections – 600 basis point mix improvement since 2016

slide-8
SLIDE 8

By Increasing Direct Collections, We Lower Feedstock Costs

Directly Sourced UMO Materially Less Than Third-Party Supply

8 TTM Variance In Cost Between 1 Gallon of Directly Sourced UMO vs. 1 Gallon of Third-Party Supplied UMO

Significant Potential Opportunity To Reduce Feedstock Costs

($0.45) ($0.40) ($0.35) ($0.30) ($0.25) ($0.20) ($0.15) ($0.10) ($0.05) $0.00 TTM 4Q17 TTM 1Q18 TTM 2Q18 TTM 3Q18 TTM 4Q18 TTM 1Q19

slide-9
SLIDE 9

We Own Advantaged Refining Assets In Strategic Markets

Vertically Integrated Model Processes Collected UMO as Feedstock

9

> 4,800 bpd nameplate capacity > Feedstock: UMO > Production: Middle distillates > Opportunity: Demand for IMO- compliant marine fuel

Marrero Refinery

Marrero, Louisiana > 1,500 bpd nameplate capacity > Feedstock: UMO > Production: Group II+ base oil > Opportunity: Global transition to higher-purity base oils

Heartland Refinery

Columbus, Ohio > Waterfront facility w/ 100,000 barrels of storage on-site > Refining supply / distribution > Strategically located on the Houston ship channel

Baytown Terminal

Baytown, Texas

Refining Operations Overview

> TTM 1Q19, our refining system produced more than 84 million gallons of finished products annually (+6% y/y) > Direct and third-party collections of UMO provide the feedstock for both Marrero and Heartland > Marrero and Heartland operating near peak utilization given strong demand for middle distillates and Group II base oils > Production slate includes middle distillates, base oils, asphalt, condensate and fuel oil

slide-10
SLIDE 10

We Operate a Safe, Reliable Refining System

Marrero and Heartland Refineries Approaching Full Utilization

10

50% 60% 70% 80% 90% 100% 110% 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Marrero Refinery Heartland Refinery

TTM Average Utilization at Marrero is 96% of Nameplate Capacity

Heartland Has Average Utilization of 100% on a TTM Basis

slide-11
SLIDE 11

We Are Focused On High-Grading Our Production Slate

Multi-Year Transition From Commodity To Branded Products

11 Realized Gross Margin Capture Product Portfolio Evolution Commodity Products Specialty Products

Vacuum Gas Oil IMO Marine Fuels High Purity Base Oils

Niche Lubricants

slide-12
SLIDE 12

Framing The Opportunity: Low Sulfur Marine Fuel (IMO 2020)

IMO 2020 Represents a Potential Catalyst for Vertex

12

0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

IMO Mandated Sulfur Levels in Marine Fuel

Sulfur Cap Transitioning From 3.5% to 0.5% by 1/1/2020

Vertex Produces IMO Compliant Marine Fuels

Total Annual Middle Distillate Production at Marrero Refinery

IMO 2020 Executive Summary

> IMO 2020 mandates a significant reduction in sulfur levels found in marine fuels by January 1, 2020 > New, low-sulfur specification marine fuel is anticipated to be in short supply once the regulation goes into effect > Decline in HSFO demand expected to result in lower UMO prices, contributing to lower feedstock costs for Vertex > Anticipate distillate crack spread will rise in response to shortages of IMO-compliant marine fuel to the benefit of Vertex > We produce more than 48 million gallons of IMO compliant marine fuels each year

45.8 49.1 46.1 48.5 2017 2018 TTM 1Q18 TTM 1Q19

slide-13
SLIDE 13

We Expect IMO 2020 Will Result In Lower Feedstock Costs

As HSFO Prices Decline Ahead of IMO 2020, UMO Prices Will Follow Suit

13 VTNR “Clean-Dirty” Spread

Cost Inputs / Product Pricing

> We purchase UMO (e.g. feedstock) at a discount to 3% high sulfur fuel oil (HSFO); we price our finished product versus to NY Harbor Ultra Low Sulfur Diesel Fuel (ULSD) > The “spread” between the UMO cost and

  • ur finished product price is our gross

margin per gallon sold > IMO 2020 is expected to reduce the value

  • f 3% HSFO; as 3% HSFO oil costs

decline, so will UMO (feedstock) costs > Even as our feedstock costs decline, we project that benchmark diesel prices for low sulfur marine fuel will rise materially leading up to IMO 2020

Implies Spread Between 3% HSFO and ULSD NYMEX $/bbl

Higher 3% HSFO Costs Temporarily Impacted Distillate Margin Capture

$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00

slide-14
SLIDE 14

Framing The Opportunity: Transition To Group III Base Oil

Transition To Higher Purity Base Oils a Potential Catalyst for Vertex

14 North American Base Oil Capacity Shift(1)

Trend Toward Higher Viscosity Base Oil Capacity

Projected U.S. Group III Base Oil Demand(2)

Millions of Gallons Per Year

Group III Base Oil Executive Summary

2% 56% 21% 21% 6% 23% 54% 17% Re-refined Group I Group II and III Naphthenic 2008 2018

(1) Source: LNG Lubricants Industry Factbook (2018-2019)

> Multi-year global transition away from Group I base oils toward higher viscosity Group II and III Base Oils > Higher purity Group II and III base oils provide better fuel efficiency and are more environmentally friendly > Group II/III base oils comprise 54% of the North American Base Oil Market > We anticipate demand for Group III base oils has begun to accelerate, taking share from Group I and II > Currently, we produce Group II at our Heartland refinery and serve as a third-party marketer of Group III from a global producer > We are evaluating a project that would allow us to begin producing Group III Base Oil at Heartland (OH) and Belle Chasse (LA)

77 85 93 102 113 124 136 150 165 182 200 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

(2) Source: Company Market Forecast

slide-15
SLIDE 15

High-Return Capital Projects Under Review

Focused on Collections Growth, Marine Fuel, Group III Base Oil Production

15

High-Return Growth Opportunities Limited Capital Requirements Third-Party Financing Required

Collections Growth TCEP (IMO Play) Group III Base Oil Production LS Fuel Production (IMO Play)

> Expand service radius outside of immediate vicinity of refining assets > Increase current- customer off-take > Grow truck fleet to increase existing market penetration > Use proprietary TCEP technology to convert UMO into diesel replacement > Use TCEP product stream to blend w/ high sulfur fuel, thereby creating IMO spec distillate > Commence production of high- value Group III base

  • ils at our Belle

Chasse, LA and Heartland, OH facilities > Capitalize on U.S. Group III demand - 10% CAGR > Begin producing low sulfur diesel fuel from crude oil for the marine and residual fuel market at our facility in Baytown, TX w/ new crude topping unit > Strategically located directly outside the Houston Ship Channel

High Probability High Probability High Probability Low/Med Probability

slide-16
SLIDE 16

Compelling Investment Thesis

Favorable Market Fundamentals, Improved TTM Performance

16

> IMO 2020 transition will reduce feedstock costs while creating increased demand for IMO-compliant marine fuels > Multi-year transition toward higher- viscosity, higher- margin Group II and III base oils

Strong Underlying Market Trends

> Material y/y improvement in Adjusted EBITDA and Free Cash Flow > Reduced net leverage from 7.7x to 2.3x on a TTM basis > Expect to refinance existing term loan by end of 3Q19

Improved TTM Financial Performance

> Leading UMO collector consolidating fragmented industry > 17% y/y growth in total collections TTM 1Q19 > Focused on growing cost-advantaged direct collections vs. third-party supply

Sustained Growth In UMO Collections

> Focused on increasing production

  • f IMO-compliant

marine fuels, increasing Group II production and commencing production of Group III > Projects reliant on third-party financing – diligence ongoing

High-Return Capital Projects

y

> Led by founder/CEO Ben Cowart > Senior leadership with decades of UMO and industry-relevant experience > High insider

  • wnership aligns

management and investor interests

Aligning Investor Interests

#1 #2 #3 #4 #5

slide-17
SLIDE 17

1Q19 Results Update

slide-18
SLIDE 18

Adjusted EBITDA Bridge

1Q18 vs. 1Q19 ($MM)

18

slide-19
SLIDE 19

Future Strip Implies Material Improvement In VTNR Margins

UMO Costs Expected To Track Decline In High Sulfur Fuel Oil

19 Projected Futures Spread Between WTI and USGC 3% High Sulfur Fuel Oil (Proxy for UMO Feedstock)

Implies $15 per barrel (or $0.36 Per Gallon) Improvement in Spread Over The Next 12 Months (as of 5.16.19)

Feedstock Costs at a Discount To Product Benchmark – Positive Impact to Margin Capture Feedstock Costs at a Premium To Product Benchmark – Negative Impact to Margin Capture

$5.05 $3.46 $1.90 $0.11 ($5.02) ($6.64) ($7.90) ($8.90) ($8.56) ($9.26) ($9.76) ($10.00) May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20

slide-20
SLIDE 20

Positive TTM Margin Trend In Black Oil Segment

Black Oil Segment Represented 78% of Gross Profit in 1Q19

20 Black Oil Segment

Positive TTM Gross Margin Trend (%)

Refining/Marketing Segment

Positive Y/Y Gross Margin Trend

Recovery Segment

Positive Y/Y Gross Margin Trend

16% 11% 17% 18% 1Q18 1Q19 TTM 1Q18 TTM 1Q19 8% 11% 7% 3% 1Q18 1Q19 TTM 1Q18 TTM 1Q19 18% 19% 19% 11% 1Q18 1Q19 TTM 1Q18 TTM 1Q19

slide-21
SLIDE 21

Marrero, Louisiana Refinery Update

First Quarter 2019

21 Marrero Operations

Key Developments in 1Q19

Marrero Total Product Sales Volumes

Millions of Gallons Sold > Logistics and poor weather in shipping channels led to lower production volumes and higher costs, given reduced operating leverage > Total sales volumes declined 3% y/y in 1Q19 due to lower than planned production levels > Refinery currently operating near peak utilization

14.2 16.2 13.9 13.2 13.8 1Q18 2Q18 3Q18 4Q18 1Q19

slide-22
SLIDE 22

Heartland, Ohio Refinery Update

First Quarter 2019

22 Heartland Operations

Key Developments in 1Q19

Heartland Total Product Sales Volumes

Millions of Gallons Sold > Operated at 98% capacity in 1Q19

  • vs. 89% in 1Q18 – safe, reliable
  • perations

> Realized product margins impacted by soft market on base oil finished product prices > Seeing a recovery in base oil prices during April and into May, which stands to benefit product margin capture in 2Q19

4.4 4.5 5.4 4.6 5.1 1Q18 2Q18 3Q18 4Q18 1Q19

slide-23
SLIDE 23

Anticipate Q/Q Recovery In Gross Profit Per Gallon

Project Lower Feedstock Prices and Improved Spreads Entering 2Q19

23 Total Gross Profit Per Gallon

Anticipate Increased Base Oil Prices + Operational Reliability At Refineries Are Projected To Benefit Spreads In 2Q19

$0.17 $0.13 $0.21 $0.19 $0.27 $0.23 $0.17 $0.14 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19

*18% Increase in Base Oil Prices Effective 5/1/19 *Operating Near Peak Capacity Utilization *UMO Feedstock Tracking Decline in 3% HSFO

slide-24
SLIDE 24

Noel Ryan, IRC VTNR@vallumadvisors.com

CONTACT