Analyzing Vertex Resource Group’s Q2

Vertex Resource Group (TSXV: VTX) will be a mainstay in the market for a long time. The environmental solutions company generates substantial revenue, is free cash flow positive, and operates a highly diversified business model that protects it from market downturns.

In 2023, the company generated over $255 million in revenue, $38 million in EBITDA, and $18 million in free cash flow. The positive performance has carried over into Q2 2024 as Vertex reported $57 million in sales, $10 million in EBITDA, and $2 million in free cash flow.

The kicker? Vertex Resource Group trades at a market cap of just $29 million.

Despite unprecedented financial strength, robust fundamentals, and a proven management team, the company continues to fly under the radar of most investors. Fortunately, this creates an opportunity to invest at a discount before the market wakes up.

In this article, we explore Vertex Resource Group’s latest quarter while highlighting key aspects of the business and assessing its long-term prospects. Let’s dive in.

What is Vertex Resource Group?

Vertex is a leading environmental solutions company that is making waves across Canada and the United States. Specializing in a comprehensive range of environmental services, Vertex caters to diverse project needs by operating through two highly synergistic segments: Environmental Consulting and Environmental Services.

Environmental Consulting

In today’s fast-paced world, navigating environmental regulations can be a daunting task. Vertex’s Environmental Consulting segment offers a vast array of 32 distinct advisory services designed to guide clients through the intricate maze of environmental standards, legislation, and compliance requirements. Here’s a glimpse of what Vertex provides:

Capital Expenditure and Asset Development: Offering strategic guidance on financial planning and asset creation.

Environmental Consulting: Expert advice to ensure environmental compliance and sustainable practices.

Monitoring of Existing Assets: Regular checks to maintain the health of your assets.

Emission Management Solutions: Techniques to manage and reduce emissions effectively.

Subsurface and Facility Engineering: Engineering solutions for both below-ground and facility needs.

Asset Retirement and Land Reclamation: Efficient strategies for retiring assets and restoring land.

Vertex prides itself on combining in-house expertise with a vast network of consultants. This blend offers clients a flexible, cost-effective alternative to hiring their consultants, thereby reducing capital expenditure and enhancing operational flexibility, especially during business lulls. The team’s expertise spans a wide array of skills, backed by access to Vertex’s intellectual property, ensuring clients can pinpoint the precise expertise they need.

Environmental Services

Vertex’s Environmental Services unit provides the manpower and specialized equipment required for tasks such as transportation, removal, storage, disposal of materials, and facility maintenance. Here is a sample of services that set Vertex’s Environmental Service unit apart:

Fluid Management and Logistics: Streamlined management of liquids, ensuring safe handling and transportation.

Waste and Recycling: Effective solutions for waste management and recycling needs.

Industrial Cleaning and Maintenance: Keeping facilities clean and well-maintained with professional services.

Hydro-excavating: Precise excavation services using water pressure technology.

Vertex ensures that all these services meet the highest environmental safety standards, aiding clients in adhering to regulatory requirements. Their impressive fleet includes 454 power units, 609 trailers, 1,444 pieces of industrial equipment, and an array of light trucks. This extensive fleet is supported by a dedicated team of employees, lease operators, subcontractors, and consultants, all working in harmony to deliver a seamless service.

What Differentiates Vertex?

By integrating consulting expertise with practical service capabilities, Vertex offers a unique, end-to-end solution for environmental project management. This positions Vertex as a vital partner for clients across multiple industries.

So why do customers choose Vertex for their project needs?

1. Seamless Project Execution

Developing a project is an intricate endeavor that demands meticulous planning, execution, maintenance, and cleanup. At any point, costs can skyrocket due to unforeseen issues such as permitting snags, design changes, supply chain disruptions, labor shortages, or subcontractor delays. Vertex tackles these challenges head-on by providing the expertise and resources necessary for successful project execution, making them a reliable partner throughout the entire project lifecycle.

2. Unified Coordination

Vertex operates as a cohesive organization, ensuring smooth coordination with consultants, subcontractors, and subsidiaries. This unified approach reduces friction and boosts the likelihood of completing projects on time and within budget, making Vertex the partner of choice for projects with stringent timelines and budget constraints.

3. Standing Out from the Competition

While competitors like Clean Harbors, Mullen Trucking, GFL Environmental, Stantec, and WSP Global offer specialized services, Vertex stands apart with its all-in-one service model. These players often force developers to juggle multiple vendors, increasing complexity and the risk of delays. In contrast, Vertex simplifies the process by offering a holistic approach that minimizes costs and risks while maximizing performance.

Vertex’s Q2 Financial Recap

Financially, Vertex continues to demonstrate resilience and strong performance, even in the face of challenging market conditions. Despite contending with wildfires, tornadoes, and production delays, the company generated an impressive $56.70 million in net revenue, achieving a robust gross margin of 29% in Q2 2024.

What stands out even more are the positive EBITDA and free cash flow metrics. This quarter, Vertex delivered $10.05 million in EBITDA and $1.7 million in free cash flow, reflecting its unwavering commitment to operational efficiency and proactive market engagement, despite the prevailing economic headwinds.

Remarkably, Vertex maintains a market capitalization of just $29 million, underscoring the significant value that remains largely underappreciated by the market.

In addition to these financial achievements, Vertex made strategic amendments to its $76.0 million Credit Facilities, extending the maturity date to May 31, 2027, and securing an increase of $5.0 million to its syndicate term loan. The company’s management has set a long-term debt to EBITDA target of 2 times, thus strengthening its financial position over the long term.

That, alongside its share buyback program, is expected to improve shareholder value significantly; in the first half of 2024, the company repurchased and retired approximately $1.0 million in common shares, accounting for 3.2% of all shares outstanding

Looking forward, Vertex anticipates steady demand throughout the remainder of 2024 and into 2025. The company’s strategic focus on sustainable energy and carbon intensity reduction positions it as a forward-thinking partner for clients, while its emphasis on cross-selling services across various industries and project phases highlights its adaptability and commitment to long-term growth.

In all, Vertex Resource Group is well-positioned for the long run whether it is its unique competitive advantages, robust financials, or shareholder-centric management team.

Why Add Vertex to Your Watchlist?

Vertex’s integrated model not only enhances the customer experience but also broadens the company’s market opportunities across various sectors.

With nearly two decades of experience in business development and client relationship building, Vertex’s all-encompassing approach is difficult to replicate. This solidifies Vertex’s niche in the market, promising to remain uncontested for years to come.

Whether a customer requires consulting or hands-on services, Vertex provides the most comprehensive solution available today. This makes it a compelling opportunity in today’s investment landscape.

To learn more about Vertex (TSXV: VTX), visit its website: vertex.ca

Disclosure/Disclaimer

We are not brokers, investment, or financial advisers; you should not rely on the information herein as investment advice. If you are seeking personalized investment advice, please contact a qualified and registered broker, investment adviser, or financial adviser. You should not make any investment decisions based on our communications. Our stock profiles are intended to highlight certain companies for YOUR further investigation; they are NOT recommendations. The securities issued by the companies we profile should be considered high risk and, if you do invest, you may lose your entire investment. Micro Math has been compensated for content creation, amounting to nineteen thousand two hundred dollars. Micro Math Capital owns zero shares in Vertex Resource Group, but its owners reserve the right to buy and sell shares in Vertex Resource Group without further notice, which may impact the share price. Please do your research before investing, including reading the companies’ public filings, press releases, and risk disclosures. The company provided information in this profile, extracted from public filings, company websites, and other publicly available sources. We believe the sources and information are accurate and reliable but we cannot guarantee it. The commentary and opinions in this article are our own, so please do your research.