Vertex Energy Inc (VTNR) 2011 Q2 法說會逐字稿

Greetings and welcome to the Vertex Energy, Inc. second-quarter 2011 financial results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ben Cowart, Chairman and CEO. Thank you, Mr. Cowart. You may begin.

Thank you very much. Good morning.

Joining me today on the call is Mr. Chris Carlson, our CFO, here at our office in Houston; as well as Matt Lieb, our Chief Operating Officer in California; and Michael Porter, with -- the Investor Relations Consultant at Porter, LeVay & Rose actually here in Houston with me.

Before we begin the business portion of this call and on behalf of the Company, I'd like to inform you that the Company expects to make forward-looking statements during the call today. Statements include words such as believe, anticipate, or 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.

Thank you again, everyone, for joining us on the call and for our second-quarter 2011 earnings call for Vertex Energy. This call coincides with today's filings of our 10-Q for the quarter ending June 30, 2011.

I want to start off by giving you a few highlights from the first half of this fiscal year 2011, and then I will turn the call over to Chris Carlson, our CFO, so that he can walk you through our Q2 2011 financial performance and our results for the first six months of this year. Following Chris' presentation, I will provide some thoughts on our plans for the remainder of the year 2011 and I will make some closing remarks. We'll then open the line for questions.

The second quarter was our most profitable quarter yet as a public company. We believe that our results from the first quarter and the first half of 2011 provide a good illustration of the Company's capabilities as we continue to push forward for growth in our business. A few quick highlights from the second quarter and first half of 2011 that we will touch on in more detail during this call.

We grew our revenue by 75% in Q2 2011 compared to Q2 2010. Consolidated revenue for Q2 was $27.8 million. For the first six months of this year, our consolidated revenue was $48.1 million, a 65% increase over the first six months of 2010.

TCEP revenues for the quarter increased by 81% compared to Q2 2010. For the first six months of 2011, TCEP revenues increased by 90% to $21.2 million.

We increased quarterly gross profits 171% over the same period last year to $2.47 million. Our gross profit for the first six months of this year increased 145% to $4.74 million, when compared to the same period in 2010.

Our per-barrel margin increased 149% for Q2 2011 versus Q2 2010, and 115% for the first six months of this year compared to the first six months of 2010.

Overall sales volume increased by 9% for Q2 2011 versus Q2 2010, and overall sales volume increased 14% for the first six months of this year versus last year. We generated positive net income for the quarter of $1.4 million, a 398% increase versus Q2 2010.

For the first six months of this year, our net income has increased 372% to $2.6 million. Our Q2 2011 net income exceeded our full-year 2010 net income.

We began operating at our Mobile, Alabama terminaling facility which enhanced our [usual] aggregation footprint, east of the Mississippi River. This is a new operation focused on our Black Oil Division and focused on aggregating additional volumes that we will later monetize fully.

Before discussing my outlook for the remainder of 2011 and our view of the market going forward, I would like to first turn the call over to our CFO, Chris Carlson, for a review of our financial performance in the second quarter 2011 and the first half of fiscal year 2011. Chris?

Thank you, Ben.

For more information, please refer to our press release issued today, our latest Form 10-Q for the fiscal quarter ending June 30, 2011, as well as our other filings made with the Securities and Exchange Commission. I also want to mention before we proceed that all financial numbers are prepared unless noted in accordance with generally accepted accounting principles. I'd like to now discuss our results.

Revenue. For the quarter ended June 30, 2011, we reported consolidated revenue of $27.8 million, compared to $15.9 million during the same period in 2010. This represents a 75% revenue increase. For the first six months of 2011, our revenue increased 65% relative to the first six months of 2010 to $48.1 million. The revenue increase was due primarily to increased commodity prices as well as an increase in overall sales volumes, specifically within the Refining and Marketing Division. You can find more detailed information on the various pricing benchmarks that are most applicable to our business in our 10-Q that was filed today.

Our Black Oil Division revenue for Q2 2011 was $4.4 million, as compared to $4.9 million during the same period in 2010, a decrease of over 9%. This decrease in Black Oil revenue is attributable to pushing an increasing amount of used oil through our TCEP process, rather than selling it as unprocessed used oil to third parties. We are currently generating greater revenue and margins on a per-barrel basis by running used oil through TCEP, rather than selling it unprocessed to third parties. The resulting increase in revenue and margins are captured in Refining and Marketing Division's figures.

For the first six months of 2011, Black Oil revenue actually increased by 10% from $8.05 million to $8.85 million. The Refining and Marketing Division, which includes TCEP, produced revenue of $23.3 million in the second quarter of this year versus $11 million during the second quarter of 2010. This represents a year-over-year increase of over 113%.

For the first six months of 2011, revenue increased 86% relative to last year going from $21.1 million to $39.3 million. TCEP, which again is a business unit within our Refining and Marketing Division, generated $12.7 million in revenue during Q2 2011 versus $7 million in Q2 2010. This represents a year-over-year increase of over 81%.

For the first six months, TCEP revenue increased from $11.2 million in 2010 to $21.2 million during the same period this year, an improvement of 90%. As the figures indicate, we have made tremendous strides in our TCEP line of business since the initial launch in the third quarter of 2009.

Gross margin. Gross profit increased in Q2 2011 to $2.47 million compared to gross profit of $900,000 in the second quarter of last year. This 171% increase in gross profit is primarily attributed to the improved margins of the Refining and Marketing Division's TCEP operations.

For the first six months of 2011, our consolidated gross profit increased to $4.74 million, a 145% increase over the same period last year. Gross profit for the Black Oil Division was just over $417,000 in the second quarter of this year, a decrease of 25% compared to last year's second-quarter gross profit of $554,000. As I mentioned previously, this reduction in gross margin is driven by our decision to push more used oil through TCEP, rather than selling it unprocessed to third parties.

For the first six months of this year, Black Oil gross profit was $825,000, which is essentially equal to the division's gross profit for the first six months of last year. The Refining and Marketing Division as a whole generated gross margin of $2.05 million in Q2 2011, an increase of 478%, compared to the second quarter of 2010's gross profit of $354,000. For the first six months of 2011, Refining and Marketing's gross profit increased 252% when compared to last year to $3.91 million.

TCEP had a gross profit of $777,000 for the most recently completed quarter, a dramatic increase over Q2 2010, TCEP gross profit of $40,000. For the first six months of 2011, TCEP generated gross profit of $1.26 million versus a negative gross margin during the same period last year.

Overall, our company-wide per-barrel gross margin increased 149% for the second quarter of 2011, versus the same period last year. For the first six months of this year, our per-barrel margin is up 115% compared to the same period last year.

SG&A. Selling, general and administrative expenses increased by 44% in Q2 2011 relative to Q2 2010. Our Q2 2011 SG&A expense was $1 million versus $700,000 in the same period last year. Though SG&A increased, SG&A as a percent of revenue decreased from 4.41% in Q2 2010 to 3.62% of revenue in Q2 2011.

For the first six months of this year, SG&A was $2.03 million, a 40% increase relative to last year. As a percentage of revenue, SG&A actually decreased from 4.98% for the first six months of 2010 to 4.23% for the first six months of this year. We anticipate SG&A to remain relatively flat for the remainder of 2011.

Net income. We had net income of nearly $1.41 million or $0.10 per fully diluted share in Q2 2011. This was a 399% increase over 2010's second-quarter net income of roughly $283,000, which represented a per fully diluted share figure of $0.02. Our Q2 2011 net income exceeded our net income for the full year 2010.

For the first six months of this year, our net income was $2.61 million, or $0.19 per fully diluted share. This represents an increase in net income of 372% over the first six months of 2010. Our current cash position is $2.5 million and the Company currently has no long-term debt.

Now I'd like to turn the call back over to Ben Cowart, our CEO, for some closing remarks.

Thank you, Chris. As the numbers Chris presented illustrate, we've made tremendous strides since the second quarter of 2010, and the Company is beginning to really demonstrate the type of results we have been working towards since we became publicly traded in April of 2009. As we move further into the second half of the fiscal year 2011, I want to share some of our thoughts on where the business is heading.

We will continue to focus on improving the TCEP process. We have completed the bulk of the necessary capital investments in the process; the first and second-quarter results speak to the impact that TCEP is now having and will continue to have on our business. We're evaluating in other ways for us to capitalize on our competitive advantage in aggregating used oil and other distressed hydrocarbon feedstocks to include analyzing additional re-refining technologies that may be applicable to our business. We are reviewing the possibilities of making select acquisitions to either bolster our ability to aggregate feedstock, or to improve our ability to upgrade various feedstock streams.

On June 15, 2011, we converted all 600,000 outstanding shares of Series B preferred stock into 600,000 shares of the Company's common stock. We are able to do this because our stock traded above $2.00 per share for 10 consecutive days. As a result, we are no longer required to make preferred payments on those shares. Given our recent performance and as we've disclosed in our filings, we are actively investigating a move from the OTC to a national exchange.

Looking at the market on an overall basis and looking at our growth prospects, things look very good from where we sit. Number one, our Black Oil space is still very much unaddressed with viable technology. Natural gas continues to put a dampener on the Black Oil values. This creates additional TCEP opportunities.

Secondly, the collectors in the space realize the importance of aligning with alternative markets and refining technology. This will fuel our Black Oil business growth, as well as the possibilities of acquisition opportunities going forward.

As we look at the long-term prospect of our industry, we see the market in a transition, a paradigm shift if you will, from a conventional industry where this oil has been basically burned as a raw fuel and now it's becoming more of a feedstock to technology where products can be derived from this raw material that reflect a much higher value and use for that resource.

So as a company, we're focused on that. We're focused on the systems and the proper management of this resource and making sure it gets in the proper market and the proper values derived from that material. So we'll move forward in that thing.

Before we move onto the question-and-answer portion of this call, I wanted to let the listeners know that if you have any follow-up questions or comments, please feel free to contact our Porter, LeVay & Rose Investor Relations representative, Marlon Nurse, at area code 212-564-4700. I also want to mention that a digital replay will be available by telephone approximately two hours after the call completion for the next two weeks. Details on how to access the replay can be found in our recent press release.

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

(Operator Instructions). Kevin Martin, Garden State Securities.

Hi, guys. Congratulations on the numbers. I just wanted to ask on the TCEP process, what is your capacity right now on that? Are you at 100%? Can you continue to increase that volume through the TCEP process over the next few months?

Yes. Kevin, good question. TCEP is currently operating ahead of its design capacity slightly. We believe that there's upside in developing further production from the plant, and we're working on that as we speak. So we're very pleased with how the plant has come up to what our expectations were. And what we're finding is improvements and opportunities as we work the unit every day to get more production.

So at this point, it's running on an everyday basis? Are you running it eight hours a day, 24 hours a day? And what is the plan there? Have you worked out all the kinks?

Yes, the plant runs 24/7, so it's a continuous flow operation. We designed the capacity at 45,000 barrels a month of feedstock, and we're currently in excess of 50,000 on average for the last probably four months.

So how much higher can you go above 50,000?

Well, I don't think I'm prepared to state that right now because we're still in R&D but --

But to do that, Ben, if you wanted to go above 50,000, do you have to grow a bigger facility?

No, no.

Do you have to knock down walls or you know?

Yes. We've got infrastructure and process capacity to grow into at this side.

Okay, okay. A couple of things that you mentioned about different things going through that process and then I guess coming out the other end and going to different areas with I guess I'm assuming higher margin, that's what you're looking at. So I guess the main goal is to control as much of that flow or the feedstock and have that asset. And then as it's moving through this TCEP, figure out where you can go to a higher-margin area. And I guess that's the game plan from here is to see if there's other higher margin as you control all that inflow?

Yes. Kevin, you hit it very well. We're very focused on raw material aggregation because we know we can monetize that over time and increase our margin per barrel. So we're running a parallel path; we want to grow the volume of the Company, and then we will continue looking at improvements that will further monetize the finished product.

And I assume that the new facility, is the game plan too there to capture that flow first and then start to look for the TCEP process there?

Well, actually it's yes and no. Yes, in that we have been and we'll continue to be focused on our volume going into the first facility, but we're also expanding our aggregation footprint in other markets.

With hopefully obviously once you control that flow doing the same thing that you've done there?

That would be nice.

At the new facility, is there any infrastructure for the possibility to add to TCEP now? Is there infrastructure there for that game plan?

We haven't looked that far down the road.

Okay. My last question -- I'm sorry to take up so much time. I think that the collectors would be -- I don't want to say mom-and-pop, but it seems maybe the collectors are not -- maybe they're a little spread out. Would it be a business sense to maybe roll up some of those collectors, so that you guys own them therefore taking down the price of the feedstock and increasing margins?

Yes. Obviously, I believe that there's some real acquisition opportunities going forward in that very sector, and we're looking at that very closely.

Okay. Thank you. Thank you very much, Ben.

Thank you, Kevin. Appreciate your call and the question.

[Lloyd Quartin], Unique Investments.

Hello, gentlemen. Congratulations on a brilliant quarter. Yes, the Mobile, Alabama facility, I didn't know that it's already online, but what percent -- in other words, how much has it contributed to this past quarter? And at what capacity is that new facility running at?

Yes. The results from the Mobile operation are making no or very little contribution to the second-quarter results, so most of that if not all will be coming through on the third quarter. I will say that we set a target for 20,000 barrels a month, a ratable volume coming through, and we are either very close if not over that target already. So we've had very good success in Mobile, we're very encouraged about how well Mobile has come on board.

So you'd consider it a profitable facility at this point?

Yes, yes. We believe Mobile is already in a contribution position. In size, feedstock size, we have about 30,000 barrels of raw material storage coming into our facility in Houston, and we have equal capacity there in Mobile as well. And we're looking at growing that business.

Is there plans for another facility?

Yes. We're constantly looking at unaddressed markets, and that's a driver for our growth, and I think Mobile is a perfect example of how we've moved on a market where we felt like we could contribute value to and we have several other markets that we are working on at this time that I really can't disclose.

So just to clarify this, so basically this past quarter's results did not really include anything from the Mobile plant? And going forward for the next quarter, we could potentially anticipate additional profits and revenues to be added onto what we're already accomplishing?

Yes, that's correct.

That sounds really good. Congratulations.

Thank you, sir. I appreciate the question.

You guys did a tremendous job. Thank you.

(Operator Instructions). [Jennifer Lane, Webster Court Management].

Thank you. Congratulations on a great quarter, really nice job. Chris, can you tell me what is your current cash position? And how do you expect that to change in the second half of this year?

Sure. Good question. At the end of the second quarter, it was right at $2.5 million. And as you can see, we're currently adding roughly $1 million in cash per quarter, and I expect that to continue over the next two quarters.

Okay. Thank you.

(Operator Instructions). Kevin Martin, Garden State Securities.

Hi, Ben, again, last question. The price that we see everyday day of barrel of oil bouncing around on our CNBC screens, does that affect you in any way? Or you just take that -- what you have to feed the stock and pass it through and just move it on? There is no risk for you with this price of oil bouncing around, is there?

It's a good fair question, Kevin. We really don't see ourselves as a commodity type of business. We buy our raw material on an index and we sell it on an index, and we try to turn that inventory over rather quickly in our system.

I think the only impact is just very short-term movements in price, so obviously, everybody has seen the oil price fall very quickly, so that could have a minor impact to our operation. But as fast as the product -- the market values fall, we are buying at a much lower value, and then we're selling on the same or like-type index. So I believe we're well-insulated from long-term systemic fluctuations in price. We actually really like an $80 price. It lowers our working capital requirements and it softens once again the feedstock market.

So the positive I guess to what we're seeing on the screen that you're referring to is a NYMEX crude posting that reflects the domestic crude value, where our finished products are trading more on a global market and are tied probably more to a break crude posting, which is not being as affected as the NYMEX. There's about a $22 delta between the break crude posting and the NYMEX. I don't want to get in the weeds here, but we like the way that our product is being sold today.

Thank you.

Yes.

Gentlemen, I'm showing we have no further questions at this time. I'll turn the floor back over to management for any closing remarks.

All right. Thank you very much, guys, for joining in on the call. It's very, very, very much appreciated, especially considering the market conditions over the last four or five trading days. Certainly, Thursday and yesterday has been a real challenge. And the fact that people believe in our Company and we haven't experienced a major, major hit related to the just general market conditions is a real encouragement to our organization and what we're trying to do. So I know we have a lot of support out there and we appreciate the fact that so many folks are on the call this morning indicates that as well. So thank you for joining in and again the information for Marlon Nurse and Porter and LeVay, if you have any questions, it is in the press release and will be on this call as well, so we appreciate you dialing in.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and we thank you for your participation.