Vertex (VERX) The Stifel 2024 Cross Sector Insight Conference summary

Company history and strategic evolution

• Originated from used motor oil collection and re-refining, expanding to the largest U.S. capacity by 2015.

• Focused on two markets: low sulfur fuel for ships and high-purity base oil, with significant imports to meet demand.

• Acquired the Mobile refinery from Shell in 2022, shifting toward conventional refining due to feedstock limitations in used oil.

• Sold the Ohio used oil refinery to help fund the Mobile acquisition, maintaining a strategic used oil business in the Gulf.

• Collection business processes 5,000 barrels/day, with 4,000 collected by company trucks, making it the largest in the Gulf Coast.

Renewable diesel initiative and market pivot

• Invested $125 million to convert the Mobile hydrocracker for renewable diesel, completing the project on time and on budget.

• Market for renewable diesel collapsed due to EPA's cap on renewable volume obligations, leading to oversupply and low RINs prices.

• Attempted to sell half the renewable business to pay off construction debt, but market conditions halted the process.

• Renewable diesel production is now paused; restarting would only require a catalyst change.

• Plant will pivot back to conventional refining in the fourth quarter, with potential to resume renewables if market conditions improve.

Conventional refining and future opportunities

• Mobile refinery serves a niche market as the easternmost Gulf refinery, supplying all fuel east of Mobile via truck rack.

• Shell's offtake agreements for the truck rack and jet fuel are expiring, allowing full margin capture within 10 months, adding $35 million in new cash flow.

• Hydrocracker upgrades enable a one-third increase in throughput, boosting VGO production and margins.

• EBITDA could reach $150–$160 million annually at two-thirds hydrocracker capacity, with potential for another $100 million as capacity increases.

• Break-even is estimated below $10/barrel on a 2:1:1 crack spread, with positive EBITDA expected even in tight spread environments.