Vertex Energy Inc (VTNR) 2011 Q3 法說會逐字稿

Greetings and welcome to the Vertex Energy, Inc. Third Quarter 2011 Financial Results. At this time all participants are in a listen-only mode. A brief 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, Ben Cowart, Chairman and CEO. Thank you. Mr. Cowart, you may begin.

Thank you operator. Joining me today on this call Mr. Chris Carlson, our Chief Financial Officer; Mr. Matthew Lieb, our Chief Operating Officer; Michael Porter, our Investor Relations consultant at Porter, LeVay and Rose. Before we begin the business portion of this call and on behalf of the Company, I would like to inform you that the Company expects to make forward-looking statements during today's call.

Statements including words such as believe, anticipate, expect and statements in the future tense are forward-looking statements. These statements involve known and unknown risk 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 to everyone for joining us on the Third Quarter 2011 Earnings Call for Vertex Energy. This call coincides with today's filings of our 10-Q for the quarter ending September 30, 2011.

I want to start off by giving you a few highlights from the first nine months of fiscal year 2011. And then I will turn the call over to Chris Carlson, our CFO, so that he can walk you through our Q3 2011 financial performance and our results for the first nine months of this year. Following Chris's presentation, I will provide some thoughts on our plans for the remainder of 2011 and into next year, and I will make some closing remarks. We will then open the line for questions.

The third quarter was another profitable quarter and represented our highest revenue quarter ever as a public Company. Here are a few quick highlights that we will touch on in more detail during this call. We grew our revenue by 128% in Q3 2011 compared to Q3 2010.

Consolidated revenue was $30.3 million for the quarter. For the first nine months of this year our consolidated revenue was $78.4 million, an 85% increase over the first nine months of 2010.

We increased our quarterly gross profit 148% over the same period last year to $2.03 million. Our gross profit for the first nine months of this year increased 146% to $6.77 million when compared to the same period in 2010.

Overall sales volume, an important matrix for our business as it illustrates our reach into the market, increased by 36% for Q3 2011 versus Q3 2010. And overall sales volume increased 21% for the first nine months of this year versus last year.

We generated positive net income for the quarter of $1.03 million, a 393% increase versus Q3 2010. For the first nine months of this year, our net income has increased 378% to $3.64 million.

We continue to grow our Mobile, Alabama-based used oil aggregation footprint and we sourced an increasing amount of black oil from California during Q3 2011.

Before discussing our outlook for the remainder of 2011 and our view the market going forward, I would first like to turn the call over to our CFO, Chris Carlson, for a review of our financial performance in the third quarter 2011 and the first nine months 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 September 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 would now like to discuss our results.

For the quarter ended September 30, 2011 we reported consolidated revenue of $30.3 million compared to $13.3 million during the same period in 2010. This represents a 128% revenue increase.

For the first nine months of 2011, our revenue increased 85% relative to the first nine months of 2010 to $78.4 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 Q3 2011 was $6.25 million as compared to $6.67 million during the same period in 2010, a decrease of roughly 6%. 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're 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 margin are captured in our Refining and Marketing Division figures. Despite pushing greater used oil volume through TCEP this year, for the first nine months of 2011 the Black Oil Division revenue actually increased by 2.5% from $14.7 million to $15.1 million.

The Refining and Marketing division, which includes TCEP, produced revenue of $24 million in the third quarter of this year versus $6.6 million during Q3 2010. This represents an increase over the prior-year period of over 263%. For the first nine months of 2011, revenue increased 128% relative to last year, going from $27.7 million to $63.3 million.

TCEP, which again is a business unit within our Refining and Marketing Division, generated $14.9 million in revenue during Q3 2011 versus $397,000 in Q3 of 2010. During the third quarter of 2010 TCEP was deliberately throttled back as we implemented a number of operating improvements.

For the first nine months of 2011 TCEP revenue increased from $11.6 million in 2010 to $36.1 million during the same period this year, an improvement of 212%. As the figures indicate, TCEP continues to grow in its importance for our business.

Gross profit increased in Q3 2011 to $2.03 million compared to $819,000 in the third quarter of last year. This 148% increase is primarily attributed to the improved margins of the Refining and Marketing Division's TCEP operations. For the first nine months of 2011 our consolidated gross profit increased to $6.77 million, a 146% increase over the same period last year.

Gross profit for the Black Oil Division was just over $642,000 in the third quarter of this year, a decrease of over 26% compared to last year's third-quarter gross profit of approximately $871,000. As I mentioned previously, this reduction in gross margin was driven by our decision to push more used oil through TCEP rather than selling unprocessed used oil to third parties. For the first nine months of this year, Black Oil gross profit was $1.47 million, which is approximately 13.5% less than the gross margin for the first nine months of 2010.

The Refining and Marketing Division as a whole generated gross margin of $1.39 million in Q3 2011, a dramatic increase compared to the third quarter of 2010's negative gross margin of roughly $52,000. The first nine months of 2011 the Refining and Marketing Division's gross profit increased to $5.3 million, roughly a 400% increase when compared to $1.06 million in the prior-year period.

TCEP had a gross profit of nearly $500,000 for the most recently completed quarter, a substantial increase over Q3 2010, TCEP's negative gross margin of approximately $995,000, when the process was deliberately scaled-back for the implementation of operating improvement. For the first nine months of 2011, TCEP generated gross profit of $1.76 million versus a negative gross margin during the same period last year.

Selling, general and administrative expenses increased by 49.5% in Q3 2011 relative to Q3 2010. Our Q3 2011 SG&A expense was $998,000 versus $667,000 in the same period last year. Though SG&A increased, SG&A as a percent of revenue decreased from 5% in Q3 2010 to 3.3% of revenue in Q3 2011.

For the first nine months of this year SG&A was $3.03 million, a 43% increase relative to the same period last year. As a percentage of revenue, however, SG&A actually decreased from 5% for the nine months of 2010 to 3.9% for the first nine months of this year. We anticipate SG&A to remain relatively flat for the remainder of 2011.

We had net income of nearly $1.03 million or $0.06 per fully diluted share in Q3 2011. This was a 393% increase over 2010's third-quarter net income of roughly $209,000, which represented a per fully diluted share figure of $0.02.

For the first nine months of this year, our net income was $3.64 million or $0.25 per fully diluted share. This represents an increase in net income of 378% over the first nine months of 2010, which had net income of $761,147 or $0.06 per fully diluted share.

And now I would 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 have made tremendous strides since the third quarter of 2010, and the Company is now stringing together multiple profitable quarters and showing marked improvements year-over-year.

For the trailing 12 months ending September 30, 2011, we generated revenues of over $94 million, gross profit in excess of $8.2 million and net income of over $4.1 million. As we move further into the final quarter of this year, I want to share some of our thoughts on where the business is heading.

We will continue to focus on improving the TCEP process to include evaluating more profitable markets and applications for the TCEP finished product. We are evaluating other ways for us to capitalize on our competitive advantage in aggregating used oil and other hydrocarbon feedstocks to include analyzing additional re-refining technologies that may be applicable to our business. We're actively reviewing the possibility of making select acquisitions to either bolster our ability to aggregate feedstock or to improve our ability to upgrade various feedstock streams.

Given our recent performance, and as we have disclosed in our filings, we're actively investigating a move from the OTC Bulletin Board to a national exchange, although our common stock will not trade on a national exchange until we meet the listing requirements for an exchange that our Board of Directors determines is in our best interest.

Before we move on to the question and answer portion of this call, I want to let listeners know that if you have any follow-up questions or comments please feel free to contact our Porter, LeVay and Rose investor relations representatives, Marlon Nurse at 212-564-4700.

I also wanted to mention that a digital replay will be available by telephone approximately 2 hours after the call's completion for two weeks. Details on how to access to the replay can be found in our recent press releases.

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

In addition, because we have a registration statement on file with the SEC, we cannot discuss the registration statement at this time. Please note that this statement does not constitute an offer of any securities for sale.

[Kevin Martin, Garden State Securities].

Hi guys. Congratulations on the numbers. They look great.

My question is the feedstock. I may have missed the number when you were speaking about it, but the amount of feedstock that is increase month to month and quarter to quarter, I understand that now you are diverting more into the TCEP with higher margin. But how has the amount of feedstock you're processing increased either month-to-month or quarter to quarter?

Good question, Kevin. I think the way we reflect our volume growth is in our finished product sales. And so it all moves through the business. So our sales for the quarter is up 36%. These are total barrels quarter over quarter, 2010 over 2011. For the first nine months this year over first nine months last year, we are 21% increase in overall output volume.

But the output volume will be different because the amount of maybe feedstock it takes to go through TCEP might be different than just flipping it to the Black Oil Division. So I was just wondering, how much -- I think it is kind of important to control, to me, as much feedstock as you can. That makes it a very, very powerful position to be in.

I'm wondering how much more you're kind of controlling month-to-month or quarter to quarter, and how that is basically bringing on -- I would look at new accounts you are getting in this feedstock.

I think that is in that growth number. Our actual black oil volume is down, I believe, Chris, for the third quarter this year over third quarter last year because the oil is going through TCEP. So all the growth you're seeing, this 21% nine-month growth over last year's first nine months, has contributed to increased feedstock that we're capturing to monetize through the TCEP process.

Right. So how much more are you capturing quarter over quarter? That's kind of what I'm looking for.

Quarter over quarter we are up 36%.

Okay. And you mentioned something about California. I caught the tail end of that. I might've got on late. Is that a new area you are moving into? What is happening there?

We were in California for a while. And we stepped out of California because we didn't have rail capability to get into our facility in Houston. And as you know, in January we open the terminal at LBC. It's some tankage at the LBC Terminal here outside of Houston in Seabrook, Texas.

So we've been -- we're able now to access these markets by rail, and we have been successful in doing so. So we have contracted oil coming out of California into Houston today, and that is a new development in third quarter.

Are you eventually going to maybe instead of just transporting out of California, put a footprint in California in the future for a TCEP plant or a central location? Would that be feasible?

What we're doing today is expanding our footprint as far as where we can aggregate product, where we can reach soft markets. And as those feedstreams develop, we will look closer at opportunities to monetize that there locally versus shipping it over to Houston. So, all of that is a possibility. We don't have a plan at the moment that I can speak to.

Okay. My last question is the capacity you are at right now for TCEP. Are you 100% running? You're getting the most out of that? Or is there still upside there to run more through the TCEP process? And thanks for answering the questions.

Yes, no problem. I will say we are working every day to improve our output capability of the plant. We've had our best quarter yet, so our production volumes are ahead of the design of the plant, which is good.

So, one answer would be no, we're already past our engineered design capability. But personally I believe there is continued upside that we've got our focus on. So I hope to continue improving on the results that we have obtained for this quarter.

Thank you very much.

(Operator Instructions) [Lloyd Qwertin, Unique Investments].

Hi, gentlemen. I spoke to you three months ago. Congratulations on continued growth and profits.

I have a couple of things. One thing is, could you clarify for me the Mobile plant? What contribution are they producing now, and if they have, what percentage of contribution did they make? And what is foreseeable in the future as the plant starts to run at capacity?

Let me just clarify that we do not have a processing facility in Mobile. Mobile is an aggregation port. So we are receiving raw material in by rail and by truck into tankage there in Mobile, where then we load large barges and transport that to back to Houston for processing. So it is a source of feedstock today, so it is contributing through the TCEP operation, which are the numbers that we are reporting.

Are there plans for another plant? Or is Houston running at capacity?

Well, Houston is actually ahead of capacity based on design. But we believe there is additional capacity to glean from where we are at today. So we will continue mining that opportunity out of the Houston plant.

And then we will continue, just like California, looking at the other sources of feedstock and locations and make decisions about additional plans as we go forward. But nothing to disclose or any announcements to make at this point in time.

What does it run to open up a plant, current capital costs [are expected]?

You know, in our filings, we state that a second TCEP plant just in the process itself could run between $3 million and $5 million. And those are estimates. And then you've got -- it depends on your infrastructure as far as what you would add to that.

Thank you. One more. Last call you said you would be netting about $1 million this quarter. At that time, you (inaudible) potentially $1 million for the next quarter, the fourth quarter. Are we on target for that? Or are we going to exceed that? Any idea?

Well, what I said last quarter and I will say it again, we made a statement in the first quarter that with the earnings coming in from TCEP, it sets a new plateau for the Company. And we will continue moving on that same plateau and I still believe that to hold true.

Okay. Thank you so much.

[Jack Lasday], Morgan Stanley.

Good morning.

Hey.

I've got a question with regard to the financing of the growth. It appears that the financing is through your accounts receivable and a line of credit. I'm just wondering how far you can go with that. It appears that has had a big jump, and I'm wondering how many days you expect to recover your accounts receivable and whether that is all collectible.

I'm going to let Chris answer that for you.

Good question, Jack. I think as you know, we do have a line of credit with Bank of America. We're in and out of it relatively quickly. All of the receivables on the books are collectible. There are no concerns. On average our receivables turn 5 to 7 days.

Okay. And then I wanted to ask you a question with regard to the gross profits. Gross profits on a percentage basis, looks like you had about a 55 basis point increase. And my question is, on a percentage basis, it is 8.9%.

I would have thought with the difference in the mix of products that maybe that might have grown more exponentially, so to speak. What kind of gross profit percentage should we be looking for going forward?

Another good question. You know, as you stated, it is about 8.99% currently. I think some of the downward pressure on that is related to our growth, our accelerated growth than trying to gain more feedstock and more marketshare. As we move forward, our internal targets are in the 10% to 12% range.

Okay. And then my last question, Ben, a couple of times you had mentioned that you diverted feedstock away from TCEP to make some upgrades to allow for future capabilities. I took the liberty of restating that a little, and if I'm wrong, please correct me.

But you also mentioned that you hoped to improve on this quarter's results. If you are practically maxed out at this stage of the game with regard to what you can run through TCEP, which is where your better margins are, and you are squeezing a little more through the TCEP process, how do you expect to grow the bottom-line going forward?

That's a good question. And the answer is in further innovation around our technology and the way in which we are monetizing the volume. So, we have several things that we're working on that will add more gross profit, more net income to the same barrel we are producing today. So, we are deep into those improvements as we speak.

Can you do that with the existing infrastructure? Or will that necessitate either acquisitions or construction?

No, there will be add-on improvements in equipment and infrastructure, at this point, with our engineers seem to be in place to accommodate. And then we also are going to replicate our business model in other unaddressed markets, obviously. And our technology should continue to expand its footprint over the long haul.

Thanks so much.

Thank you, Jack.

There are no further questions at this -- I'm sorry, we do have one more question. [Jeremy Hellman, Avenue Key Funds].

Hi, guys. Snuck it in there.

Hey, a question just kind of on the last comment you just made. As I understand it, the business is where it is because of relationships that you have built over some years. So when I think about your ability to expand internationally, if at all, is the best path for that licensing the TCEP technology to someone who is in a similar position, having captured supply and the demand side of the equation somewhere else overseas? Is that something we can think about over a multiyear period?

I think you are right on. And I have had some discussions outside the US on that same basis. We have capitalized on the relationships and our raw material footprint here in the US. And that don't come easy, as you stated.

So our model internationally could look a little bit different than what we are doing here in the US. But, I do believe there is a lot of work to do here first. And so we will probably keep the majority of our focus here domestically and then look for maybe some joint venture license or partnership opportunities outside.

Okay. Great. Keep up the good work, guys.

Thank you.

Thank you. Gentlemen, there are no further questions at this time. Mr. Cowart, I would like to turn the call back over to you for closing comments.

All right. Thank you everyone for your questions and your interest and that Vertex Energy. We look forward to updating you on developments with the Company as they unfold and we appreciate you joining in on the call today and just wish you guys a good day. Thanks.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.