What happened
Shares of Vertex Energy (VTNR 13.74%), a refiner that uses waste products like used motor oil as a feedstock, rose a huge 31% in early trading on Tuesday. Roughly two hours into the day, the stock was still near its highs, up approximately 28%. The big news was its fourth-quarter 2021 earnings report that was released prior to the market open today. But the numbers were likely less important than the strategic update management provided.
So what
Sales in 2021 were $115.8 million, up from $47 million in 2020 and just $18.4 million in 2019. That progression is important because Vertex is building out its business (more on its expansion efforts below). For the full year, the company's net loss totaled $7.7 million, including $22.9 million from one-time items like transaction-related expenses.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, hit a record at $25.3 million for the full year. A favorable commodity-price environment and improved refining economics were two key factors. There was a mix of good and bad here, but what likely got investors in a positive mood was the update on a planned refinery acquisition.
Image source: Getty Images.
Not too long ago, Vertex's plan to sell assets to a division of Clean Harbors was scuttled, leading to a steep drop in Vertex's share price. That sale was supposed to help Vertex finance its acquisition of refining assets from a division of Shell (SHEL 1.46%), a proposed deal that investors seemed to like a lot.
Uncertainty has been in the air here. The fourth-quarter update, however, helped to clear things up. It included an update on the Shell deal, including the fact that Vertex had secured financing and contracts for output from the refinery. Vertex is now confident that it will close on the acquisition in "the coming weeks." Management believes the new asset will be producing renewable diesel by the end of 2022. Assuming things go as smoothly as the company is suggesting, this would be another big growth step for Vertex, with most of the benefits likely to show in 2023.
Now what
With a market cap of less than $500 million, Vertex is a small growth company operating in what could be viewed as an environmentally friendly niche (refining used motor oil). Its strategic moves over the past year have had a mix of good and bad outcomes, noting the Clean Harbors deal that fell through.
However, it now looks like the refinery purchase from Shell will close shortly, which should help push the accelerator for Vertex on the growth front. Still, risk-averse investors would probably be better off elsewhere since volatility could be the norm here for at least a little while longer as Vertex continues to scale up its business.
