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Edited Transcript of VTNR earnings conference call or presentation 6-Mar-19 2:00pm GMT

Q4 2018 Vertex Energy Inc Earnings Call

CUPERTINO Mar 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Vertex Energy Inc earnings conference call or presentation Wednesday, March 6, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Benjamin P. Cowart

Vertex Energy, Inc. - Founder, Chairman, CEO & President

* Christopher Carlson

Vertex Energy, Inc. - CFO & Secretary

* John Noel Strickland

Vertex Energy, Inc. - COO

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Conference Call Participants

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* Brian Joseph Butler

Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst

* Eric Andrew Stine

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Tom Bishop

BI Research

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Presentation

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Operator [1]

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Greetings, and welcome to Vertex Energy, Inc.'s 2018 Fourth Quarter and Full Year Financial Results. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ben Cowart, Chairman and CEO. Thank you, Mr. Cowart. You may begin.

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [2]

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Thank you, operator. Welcome to Vertex Energy's conference call to discuss our year-end financial results for 2018. Joining me today on the call is Mr. Chris Carlson, our Chief Financial Officer; Mr. John Strickland, our Chief Operating Officer; Michael Porter, our -- President of our Investor Relations firm Porter, LeVay & Rose.

Today, the company expects to make forward-looking statements during today's call. Statements that include such words as believe, anticipate, expect and statements in the future tense are forward-looking statements. These statements involve known and unknown risks and uncertainties and are based on management's current views and assumptions regarding future events and operating performance. A number of factors could cause the company's actual future results to differ materially from its current expectations.

Before we review our financial results, I'd like to discuss some key points about our business. As I mentioned during our third quarter earnings call, our cost-effective strategy of building in a regional collection and aggregation system around our refining assets has been quite successful. Along with the capital improvements we've made at our facilities, we're seeing increases in production volumes and output of higher value-added products.

In summary, during the first 9 months of 2018, we saw on average a stable market in each of our benchmark commodities that we track. In fact, we experienced a steady increase in volume due to overall global economic conditions, all related to supply and demand. This held true until the fourth quarter of 2018 when oil prices abruptly dropped from the highest prices for the year to the lowest prices for the year. Subsequently, in our street collections and third-party purchasing, we were focused on lowering the prices paid to generators and suppliers for used motor oil. Our street collections operations quickly shifted to its service model and I'm glad to say that in the first quarter, we are back to seeing more normalized feed and product pricing.

Total revenue increased 24% for the year ended December 31, 2018, compared to the year ending December 31, 2017. This was due primarily to increased volumes at our Marrero and Heartland facilities. In addition, we achieved increase in finished product prices. On average, prices we received for our products increased 30% for the year ending December 31, 2018, compared to 2017.

Our gross profit increased 38%, due primarily to the improvements in finished product values during 2018, fixed cost leverage at our refineries, lower cost of used motor oil, increased volumes in our self-collections, all at better pricing during the first 3 quarters of the year.

I'll now turn the call over to Chris Carlson, our CFO.

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Christopher Carlson, Vertex Energy, Inc. - CFO & Secretary [3]

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Thank you, Ben. I will now review our financial results for the year ended December 31, 2018, and the fourth quarter. All our financial statements, unless otherwise noted, are prepared in accordance with generally accepted accounting principles.

For the fourth quarter, consolidated revenues were $41.8 million, which was 1% higher than the $41.3 million reported for the fourth quarter ended December 31, 2017. For the year ended December 31, 2018, consolidated revenues were $180.7 million, 24% higher than $145.5 million in 2017. Our total volume company-wide was flat during 2018 compared to 2017.

For the fourth quarter, our gross profit was $4.9 million, a decrease of 38% from the $7.9 million in 2017. For the year ended December 31, 2018, gross profit increased 38% to $29.4 million from $21.3 million as of December 31, 2017.

For the fourth quarter, gross profit margins were approximately 12% compared to 19% for the same period a year ago. For the year ended December 31, 2018, gross profit margins were approximately 16% compared to 14% for the same period in 2017. Our consolidated per-barrel margin decreased 19% in the quarter due to overall market conditions during the period.

Our Black Oil business, which includes our Marrero and Heartland business units, generated revenue of $143.8 million for the year ended December 31, 2018, compared to revenue of $107.9 million in 2017. Our cost of revenues were $116.5 million, producing a gross profit of $27.3 million compared to cost of revenues of $91.2 million, producing a gross profit of $16.8 million in 2017. This business is our core business and despite the fourth quarter, performed well during the year.

Our gross profit increased for the year ended December 31, 2018, as a result of increased finished product values through our various facilities. We established a sustainable production stream throughout our operations and increased diligence of our street collections and pricing. The overall production volume at Heartland and Marrero was up 8% year-to-date over the same period a year ago. In 2017, we improved production capacity 17% at our facilities. In a 2-year period, we have increased capacity by 25% at our 2 operating facilities.

Our Refining & Marketing Division produced revenues of $22.9 million during the year ended 2018 as compared to $20.1 million during the same period a year ago, an increase of 14%. Gross profit was $645,000 compared to a gross profit of $1.6 million a year ago. Volumes were down 10% year-over-year and market conditions, particularly during the fourth quarter, were quite challenging as we saw a dramatic adjustment in product pricing in this division. Also, this division had a negative impact to our income from operations of over $1 million in the fourth quarter of 2018.

For 2018, our recovery division, which includes our Group III base oil import business, generated revenues of $13.9 million compared to revenue of $17.4 million a year ago. Gross profit was $1.4 million compared to $2.8 million during the same period a year ago. As noted on our last call, we made some facility improvements at our metals facility during the year, which we expect to see improved results going into 2019 as these investments play out. The impact during the fourth quarter of these decisions had a negative impact to our income from operations of over $1 million.

Our selling, general and administrative expenses were relatively flat, with expenses of $21.9 million for the year ended December 31, 2018, versus $21.6 million last year, an increase of $241,722 or 1%. This increase was due in part to expenses related to due diligence activities related to our private capital efforts.

As of December 31, 2018, our term debt was approximately $15.7 million. It should be noted that debt is down $1 million from the $16.7 million at September 30, 2018. Our working capital as of December 31, 2018, was $6.5 million compared to $3.5 million in 2017. Working capital has increased substantially, showing that we are continuing to make the right decisions in our business.

And looking at our net loss attributable to Vertex Energy, we reported $2.2 million as compared to $8.4 million in 2017, which is a 74% improvement. This improvement was primarily due to increases at our direct collection volumes into our facility, improved finished product values as well as increases in commodity prices.

Our net loss available to common shared stockholders in 2018 was $8 million or a loss of $0.23 a share compared to a net loss of $11.8 million or a loss of $0.36 a share for 2017. This was a decrease in our net loss of $3.8 million or 32% year-over-year improvement. Our EPS was calculated using an average of 35.4 million shares outstanding.

I would now like to turn the call back over to Ben Cowart, our CEO.

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [4]

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Thank you, Chris. In closing, our management team is dedicated to continuing to develop our assets to take advantage of opportunities to expand our business in the emerging marine fuel market along with long-term base oil development opportunities. We continue to work on the capital solutions to develop these long lead projects that will grow our business and create long-term sustainable value for our shareholders.

Before we take any questions, I want to let the listeners know that if you have any follow-up questions or comments, please feel free to contact Michael Porter at Porter, LeVay & Rose, our Investor Relations firm at (212) 564-4700. I also want to mention that a digital replay will be available by telephone approximately 2 hours after the call's completion until May 31, 2019. Details on how to access the replay can be found in our recent press releases and on our Investor Relations section of our website at www.vertexenergy.com.

Operator, we're now ready to take a limited number of questions pertaining to the matters discussed on this call and in our 10-K. Remember, we're unable to discuss any information or business plans, which are not publicly available. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Eric Stine with Craig-Hallum Capital Group.

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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So hearing in the industry that it's gone back to a charge-for-oil model. And just wanted to get your thoughts. I mean, it certainly seems like this has been faster than in the past when you really had to fight to get there. I'm just curious what you attribute that to. I mean, is it a short memory and people remember the drop of a couple of years ago? Is it that IMO 2020 is coming and people know that, that likely hurts the value of UMO? Or just any thoughts there. And then, where do you stand today? Do you think that that is going to kind of swing back and forth, positive or negative, going forward?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [3]

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Yes. Good question, Eric, because you are correct. Even inside the company, we've been amazed at how quickly we've been able to adjust prices on UMO based on the lower product pricing driven by lower oil prices that come off in the fourth quarter. So here's my thoughts on why things moved as quickly as they have. I think that the IMO 2020 impact has already started as it relates to the demand for used motor oil. So I would assume that other operations that consume a lot of used motor oil, primarily for feedstock, would have been in the same situation we were in the fourth quarter, where our tanks were, I wouldn't say full, but much higher in inventory than what we normally would have seen. So the market definitely has backed up as it relates to demand for used motor oil, which gave at least our company and some others plenty of cushion to aggressively work on the cost of feedstock and bring those costs down much quicker than we were able to last year. So I think that probably is the biggest driver. So demand is not as strong and inventories were high when the oil prices fell in the fourth quarter.

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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Got it. So -- I mean, it sounds like is that something -- now again, I mean, I know it's dictated by market forces, but is that something that you think is probably -- you may flip back and forth between sometimes charging, sometimes you may have to pay for it? Or do you feel like given that IMO 2020 is coming and you're starting to already see the impact that charge-for-oil might be more than norm going forward, provided markets don't change all that much?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [5]

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Yes. Oil prices have moved back considerably just since the fourth quarter, so that will play a role in pricing. There's not a lot of transparency about supply and demand and inventories and kind of what's going on in the overall industry for stakeholders to make good decisions on cost of fee, specifically around third-party supply. So just remember, 2/3 of our oil come from the third-party market. We have continued to grow and expand our own collections, but we rely heavily on third-party supply. So pricing for third-party in the -- translating back to street pricing at a generator level. And so we've not seen third-party pricing move as quickly as we've been able to move street pricing. So that's just a challenge the industry has in trying to determine what fair value of third-party oil is. We've been -- we aggressively move third-party pricing and so it actually -- it pushback a little bit, just indicating that others are still willing to pay more for that third-party oil than we were. So we depleted some inventory, and it gives us plenty of room on the street because our ability to compete on the street is based on our cost of third-party oil. So we've been able to really continue moving our street volumes forward to maintain our spread, so...

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Got it. Okay. And that's a good segue to -- I was just going to ask it was good to see you get to that 30 million gallons of self-collected. Is there -- I don't know if you're -- if you've got a goal that you want to put out there or just some thoughts. I mean, what are you thinking about growing that to in 2019?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [7]

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Yes. We're not going to forecast anything on this call. I anticipate we'll have more like for that in our next call. We really want kind of get the market kind of settle back out because managing our spread today is more important than growing our volumes. We have had a sustainable growth rate -- compounded annual growth rate since 2013 of 23%. So we anticipate continuing that course because we've got control over our operations, and we're able to build-out at that pace. So that's not a forward estimate, but at least it gives you a historical trend with an operating...

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Eric Andrew Stine, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [8]

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Yes. No. That's great. Maybe last one for me. Just on the commentary around 2019 and your expectations, maybe just talk about the linearity of that? I mean, is it fair to say that, that would be more back-half loaded just because you maybe -- some of the impact of that steep fourth quarter oil price drop that that -- there is a little bit of a lag and that might hurt spreads or weigh on spreads in the first half? Or is it more of -- you think you'd do better than 2018 and it's more constant throughout the year?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [9]

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No. I think it's fair to say the back half should speak louder than the front half. Just as you look at forward curves for the driving commodity indexes that we benchmark against. So ultra-low-sulfur diesel and high-sulfur residual fuel are 2, and then base oil prices are indexed a little bit differently, but we do see residual fuel prices coming off in the forward curve that should reflect in our cost of feedstock at the third-party level and translate to street prices. But I think the business has reset as we just discussed rather quickly even in the first quarter. I wouldn't say we're where we want to be on third-party supply cost, but I'm very pleased that the way our spreads look and our street pricing as a whole. So I think we're on a pretty good track to exceed what we've done in the 2018 year for sure.

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Operator [10]

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Our next question is from Brian Butler with Stifel.

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Brian Joseph Butler, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [11]

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Just to circle back on the pricing on the UMO. I'm surprised that you're able to get that strong street pricing while third parties holding -- kind of holding the line if you will. Is there something happening that allows that? Is that just the preference of your customers just choosing you guys over a third-party? Or is it geographic in nature? What kind of creates that ability to be strong on street pricing while third-party isn't really moving?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [12]

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Yes. I would say third parties moved pretty well, but not enough. The second part to the question is, I guess, the density that we try to hold inside the regional footprints that we're operating in. So we're not nationwide spread thin across the whole market. We -- our focus for collections is around the refining asset, let's just say, within a 300, 350 mile radius from the refinery. And so we've got good route density and good utilization of our equipment and transportation costs to the refinery is less. So that helps our spreads for our street-collected volume.

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Brian Joseph Butler, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [13]

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Okay. And then actually talking about the spread, can you give just some relative color on kind of where 2018 average ended versus '17? And then what that looks like in the first quarter and kind of thoughts on how we should think about '19?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [14]

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Well, that's a loaded question setting here on the call. I can get with you off-line and try to provide some insight on that. I don't have the data here in front of me. I can speak to the general gross profit margins for the business, which is a clear indication of the spread. Our core business is our Black Oil Division. So that's our refineries, our used oil, the collection business, third-party supply, everything all the way through. So it represents by far 75%, 80% of the company. And we looked at our gross profit margins just in that area and compared it to our run rate in the fourth quarter of last year. And we basically have average 19-plus percent all the way through the fourth quarter. So that speaks again to our ability to adjust pricing in the fourth quarter, maintain our spreads and improve the pricing of our finished product and enjoy a lot of fixed cost leverage in our refining assets. As Chris indicated earlier, we've increased refining capacity by 25% over the last 2 years. So those improvements are all working together to build a sustainable spread that we've seen actually move right through the fourth quarter on the black oil side of the business.

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Brian Joseph Butler, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [15]

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Okay. That's helpful on the black oil. And when you think about the rerefining that was a negative over $2 million headwind on the operating profit line, I'm guessing that improves in '19, but does that get back to profitability? Is -- and what kind of -- what should we be looking at that mix that kind of drives that change?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [16]

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Yes. Yes. I appreciate you asking the question because it was a real impact to the fourth quarter. And let me just speak to what happened on refining the marketing. The bottoms that we produce from the distillation process in Port Arthur have always gone as a premium blend stock to the utility blenders. That blend utility fuel was resid, it goes offshore for power generation. And what we've seen in the fourth quarter is an abrupt end to that utility demand, which speaks back to the loan market for used motor oil in the Gulf at the moment. And our pricing on our bottoms went from a premium to high-sulfur fuel oil to, I guess, John, negative $18 a barrel, if you will.

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John Noel Strickland, Vertex Energy, Inc. - COO [17]

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And we had to go reset.

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [18]

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Yes, we had to go back and reset all our supply cost that was contracted.

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John Noel Strickland, Vertex Energy, Inc. - COO [19]

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Just like used oil.

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [20]

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Just like we had to do with used motor oil, but it happened rather quickly and that demand has exponentially changed in a short period of time. So what we think has happened relative to the utility market is a lot of smaller refineries worldwide have a high-sulfur residual fuel that has been going to ships forever that we'll no longer be able to sell to the ships. So these smaller refineries are bidding the utility market down early. So the utility fuel price has decoupled from the residual fuel index that has closed arbitrage off from the United States being able to compete in these third-world markets for that business. And so the high-purity cutterstock like we produce at Port Arthur has always been the first barrel to blend in the high-sulfur resid for utility demand. So now I will say that Mexico is showing some demand. I guess, transportation is much closer to the U.S. So we see some tenders, and we hope that, that may firm up a little bit. But we have prepared the refining marketing business for this IMO impact on the utility market, and we've renegotiated our supply cost. And we got our spreads back in line going forward starting this year.

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Brian Joseph Butler, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [21]

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So that can be a profitable business even in the current environment (technical difficulty) once -- as you straighten out the spreads?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [22]

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Yes, it is and it's straight. And we're moving ahead. So we don't anticipate that impact or what we've seen in the fourth quarter.

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Brian Joseph Butler, Stifel, Nicolaus & Company, Incorporated, Research Division - Research Analyst [23]

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Okay. And then just last one. Can you give some color on just kind of the capital and liquidity for Vertex, especially into 2019 as we kind of go current on some of the credit agreements and thoughts about handling the preferreds in 2020?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [24]

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Yes. So I'll take the first pass and then Chris can certainly clean up any mess I make, but our working capital has improved quite a bit. We're about $6.5 million at the end of the quarter, and we've had a great year from a cash flow improvement standpoint and EBITDA standpoint. 2017 was $1.7 million. And as you see, 2018 was $8 million. That includes the downturn in the fourth quarter. So we anticipate 2019 to be a marked improvement over 2018, and we see a lot of tailwind with IMO going into 2020. So we're not draining that cash flow in a way that is going to hurt us and being able to recapitalize the business and do whatever we need to do to address our preferred obligations 18 months from now. So -- a little more than 18 months, right? It's middle 2020. So we're paying debt down. As Chris said, we paid $1 million down in the quarter. And we are working on some private capital solutions as I've indicated in our last calls that we'll have some liquidity component that comes into the business as well. So we will continue incrementally growing and expanding our margins through leveraging the existing assets that we currently have and having some private capital to help us do that is part of the strategy. Anything else, Chris?

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Christopher Carlson, Vertex Energy, Inc. - CFO & Secretary [25]

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No. I think I'll just to that we've got -- we've still got a great relationship with our lender. They recognize the improvement year-over-year and going forward. So again, we have no issues there either.

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Operator [26]

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(Operator Instructions) Our next question is from Tom Bishop with BI Research.

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Tom Bishop, BI Research [27]

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I wanted to get some clarity on why the overall volume in the Q4 declined 24%? Was that all due to offshore utility issue (technical difficulty) especially with your UMO inventory up?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [28]

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Yes. So that's part of it, Tom. So volumes were down in the fourth quarter with the Refining & Marketing business. The second issue was our base oil sales in the fourth quarter was substantially down because of this downturn. So demand for rerefined base oil really fell out of bed in the fourth quarter and was tough even in January. Fortunately, for our base oil refinery, we had negotiated some long-term contracts for production middle of last year that has now materialized starting in February that will more than carry all of our production. So we're pretty much in a sold-out position for our Heartland refinery for 2019, which is a big blessing considering how long the base oil market is today. So I believe that we had not positioned the company, starting in February, with these new buyers, we would be in a much different picture. But I feel good about where we are going forward, but the fourth quarter's volume were -- was impacted on the base oil side, and we had some trading volume in our Vertex Recovery business that did not have a lot of margin. And with the Refining & Marketing business as well, we had some trading volume that we basically folded into our bottoms that were going to the utility market. So when that market dried up, we pulled away from a lot of that marginal business and focused on higher margin, higher spread starting this year going forward. So that's what you see in the fourth quarter. It's -- our base business -- again, our core business and our Black Oil Division from collections, third-party supply and refining production were up, and we anticipate that to continue going forward.

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Tom Bishop, BI Research [29]

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So we shouldn't see reduction in volume going forward in 2019, especially in the next few quarters? Or will that hang on into Q1 somewhat?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [30]

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Yes. So in our Black Oil Division, we anticipate our volumes to remain consistent as they are today. In our Refining & Marketing business, there's some low-margin trading volume that we have taken out of our model because the utility market is not going to be there to buy that product. So anticipate those margin volumes to back out of the system. But we've improved our spread on our core business for Refining & Marketing that's going to more than cover that.

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Tom Bishop, BI Research [31]

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Okay. Good. And as far as the financing and the partnering arrangements for some of your big projects, it seems like it's clearly taking longer than you initially hoped? And I'm just wondering if you can give us a little color about why that is taking a long time? Are you kind of holding out to get some of them -- some of those IMO 2020 profits to be able to strike a better deal?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [32]

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Well, I'm glad you asked the question because I know it's out there. And we're very pleased with the turnaround in the company this past year with the improvement in cash flow. We can see right through the fourth quarter. We know where there was dollars that didn't show up in the quarter, but we believe there are nonrecurring impacts as we go into 2019. And so we have spent a lot of time and energy in due diligence. So we've had some costs that we've put out to bring some of this product capital to the table. And we have been managing that process internally. And we think that time is on our side as far as trying to close something on terms. Our financials are improving every day. And so we are well within our comfort level and timing for that capital. We will bring some capital in, but we're being very thoughtful about the terms and how that gets done. And so I can say we're pretty close. I think it's more in our hands at the moment as the timing of how we execute that.

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Tom Bishop, BI Research [33]

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Okay. Moving onto IMO 2020, have -- third-party estimates that you kind of used as the basis for your white paper, have they changed in any particular direction since that white paper came out, I think, moving back in the summer almost?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [34]

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Yes. So we were actually purchasing third-party supply at probably at least 10% additional discount today than what was put in that white paper.

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Tom Bishop, BI Research [35]

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And that's a good thing, right?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [36]

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Yes. That's a very good thing.

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Tom Bishop, BI Research [37]

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Okay. And -- but looking ahead to -- as it actually gets near and near to being law, January 1, do you see any change in the assumptions out there?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [38]

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No. I think the Number 6 Oil index has changed to that original research report because I don't think anybody anticipated this decoupling of the utility market. Normally, the utility and bunker market traded very close in parity to the index. So now utility fuels are -- have fallen way out at big discounts to that index. So once the bunker market steps away from this 3.5% sulfur fuel, then you're going to see a more drastic fall in 6 oil prices. I think we're seeing $20-plus a barrel reduction in the 6 Oil index as you get close to January 2020 as far as the forward curve.

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Tom Bishop, BI Research [39]

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Okay. Do I understand that the IMO 2020 only applies to within 200 miles of coast?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [40]

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No. No. That's the ecozone, which is a 0.1 sulfur speck, and this 0.5 sulfur is across the global market, all international waters.

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Tom Bishop, BI Research [41]

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Okay. Good. Okay. When I put pen to paper with your initial white paper, and that was ignoring the benefits that all this would have on the high land. I came up with an incremental P&L of about $0.50 a share, and I'm wondering if that is about what you see?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [42]

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Yes. Tom, you're breaking up. I hope that's not my line. But obviously, those research reports that the white paper is based off of has a pretty strong spread benefit to our company based solely on our Marrero production. And so again, you're looking at the third-party research as we are, and I think it will have a very positive impact. So I'll let you run those numbers, but we certainly anticipate as a company to see much stronger spreads for our production at Marrero due to these new regulations.

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Tom Bishop, BI Research [43]

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All right. Does the TCEP facility need any additional capital improvement to make the LSFO? I mean, you already made some -- or is it...

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [44]

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That's a good question. It's incremental. I'm going to say, just as a number, maybe $0.5 million. And we're off in producing. So we're going to have to staff up and do some things. We're running a new pilot here this coming week, and we're going to start preemptively running specs on the finished product. We hadn't seen the new spec yet for the 0.5, so we're still waiting on that, but we believe we are in the ZIP Code. And so we're going to get some low-cost pilot work and some test runs again here starting next week. So we'll keep you posted on TCEP as the market starts to get closer to us.

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Christopher Carlson, Vertex Energy, Inc. - CFO & Secretary [45]

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Yes. We'll have a very good update on TCEP on the first quarter call.

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [46]

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Yes.

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Tom Bishop, BI Research [47]

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Okay. I have a few more questions, but I can take them up with Chris afterwards, unless there are no other questions in the queue?

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [48]

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Okay. Let's -- I guess, we'll let you take that to Chris off-line to make sure everybody has a chance here on the call.

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Operator [49]

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(Operator Instructions)

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Benjamin P. Cowart, Vertex Energy, Inc. - Founder, Chairman, CEO & President [50]

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Tom, you're welcome to bring those questions back then if you want to now or take it up with Chris.

Okay, operator, thank you, and thank you, everybody, for dialing into the call. I'm pretty excited about our business and what we've accomplished this year. Certainly, the market set everybody back in November and December. I couldn't be more pleased with how our company and our team has quickly responded to that fourth quarter downturn. We took a hit on some improvements in our recovery division that is going to give us increased production in our metals business for process and oil filters. We believe that's really important because of the growth that we anticipate in our collection business that will generate these filters. So we felt like it was important to bring that unit down, make those repairs and position the company for significant growth going forward, and that's part of the fourth quarter. In addition, our Group III import sales was part of our Recovery business. We were soft in the fourth quarter, again, due to base oil demands and also a later time line on getting all our engine approvals that were needed in order to really move the import volume. I will say that for the first quarter, we're way ahead of projections, and we're really off to the races on our Group III business. I do not see that as an issue going forward in 2019. And everything to me, as we look at the company and look at the way the plants are operating, we've made huge headway in 2018. We see it in our EBITDA margins, and we believe we're going to see a good step up from there for 2019, and 2020 looks great. So that's our position as a company, and so we will be glad to take any questions off-line from anyone on the call. And we look forward to our first quarter call here real soon. Thanks.

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Operator [51]

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Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.