Update: Vertex Energy Second Quarter Earnings

Aug.15.14 | About: Vertex Energy, (VTNR)


Vertex Energy reported triple-digit year-over-year growth in revenue and earnings per share.

As previously described, Vertex Energy is turning trash to treasure in re-refining used oils and offering long-term treasure via a growing share price to value investors.

As expected, the first phase of the Omega deal did impact Vertex's results but investors should still dig to understand how. The share price should bounce yet again in 2014.

Vertex Energy (NASDAQ:VTNR) explained in its first quarter press release that its results would begin to "look materially different" and, indeed, its second quarter results did. Vertex reported earnings August 14th touting not double-digit but, rather, triple-digit year-over-year growth. Analysts had expected earnings of $0.07 per share for the quarter ending June 30, 2014. However, Vertex delivered a staggering $0.28 per share. Vertex Energy is a prime example of why investors should not just browse the headlines but, rather, should dig for those nuggets of treasure that help develop an investing thesis (with one shortcut provided here).

To say the market has been a little unsure about what to expect from Vertex Energy is not a stretch. Vertex announced the acquisition of Omega Holdings in March 2014. In 75 days, on June 2nd, the share price had tripled and reached a 52-week high. On June 6th, Vertex announced a $17 million private placement to enable expansion on the West Coast. Naturally, the share price dropped due to the increased share count and in the next 75 days lost 25% to 30%. First, the Omega deal is closing in phases. Therefore, the mathematics of the impact of acquiring Omega is not straightforward. Even the second quarter did not benefit from a full quarter of contribution from the first phase of the Omega deal. So, while revenue did increase 105% resulting in more than a doubling from $35.1 million to $72.1 million, it was still considered a miss because analysts had estimated revenue at $76.2 million. The increase in revenue paled in comparison, however, to the increase in earnings per share. As mentioned already, analysts had adjusted EPS estimates to $0.07 per share. Vertex Energy reported a 300% increase of $0.28 which was also a year-over-year increase of 180%. While some would surmise the additional bump in EPS growth must be a result of leveraging Omega, the actual source was a combination of one-time benefits and expenses related to the acquisition. Specifically, management referenced a $6.48 million non-cash purchase benefit which was partially offset by $1.96 million of acquisition expenses. Less the two specified factors, net income still grew 31%.

The impacts of growth, acquisition, and expansion are not wholly transparent for investors in Vertex Energy. But, that does not make them any less real. The second phase of the Omega deal should close before the end of the calendar year and will provide definite benefit to Vertex Energy's position in the western United States. As a reminder, the Omega acquisition will eventually result in a jump of re-refining capacity from 30 million barrels to 110 million barrels. The intent to acquire Ohio-based Heartland could provide benefit as early as the fourth quarter of 2014. Beyond the contribution of acquisitions, both organic and capacity growth chipped in hefty rates of 40% and 54% to existing business lines. As organic growth, capacity growth, acquisitions, and expansion continue to impact Vertex Energy's top and bottom lines in 2014, a jump back to a double-digit share price is also feasible for 2014.

Disclosure: The author is long VTNR. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I belong to an investment club that owns shares in VTNR.