Vertex Energy Inc (VTNR) 2012 Q4 法說會逐字稿

Greetings, and welcome to Vertex Energy, Inc.'s first -- fourth-quarter and year-end 2012 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.

Thank you very much. Good morning. Joining me today on the call is Mr. Chris Carlson, our Chief Financial Officer; Mr. Matt Lieb, our Chief Operating Officer; and Michael Porter, our investor relations consultant at Porter, LeVay & Rose.

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 today's call. 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, everyone, for joining us on the call, our fiscal-year 2012 earnings call for Vertex Energy. This call coincides with today's filings of our 10-K for the year ending December 31, 2012. I want to start off by giving you a few highlights from our fiscal-year 2012, and then I'll turn call over to Chris Carlson, our CFO, so that he can walk you through our 2012 financial performance. Following Chris's presentation, I will provide some thoughts on our plans for the remainder of 2013 and will make some closing remarks. We'll then open the line up for questions.

2012 was our highest revenue year ever as a public company. I'm very pleased with our performance this past year in a number of areas. Here are a few quick highlights that we will touch on in more detail during this call.

We completed the acquisition of Vertex Acquisition Sub, LLC, which marks a substantial step for the Company in our efforts to become a vertically-integrated player in the used oil industry. We now own collection operations, a terminaling operation, and our TCEP technology outright. We anticipate this acquisition leading to improved margins as the Company moves forward, as evidenced by our 98% per barrel margin increase in Q4 2012 versus same quarter of 2011.

We were recently uplisted through the NASDAQ, which we consider an important step in raising the profile of the Company.

We grew revenues by 23% in 2012, compared to 2011. Our consolidated revenue was $134.6 million for the year. We increased gross profit dollars for the year by 21% over last year to $9.79 million. Gross profit is an important metric for us because it helps us understand how we are performing as a business, while minimizing the impact of commodity prices.

Overall volumes of product sold, also a very important matrix for our business as it illustrates our reach into the market, it increased by 22% for the fiscal-year 2012 versus 2011. This increase is sold product volume is largely a result of continued throughput improvements at TCEP, combined with our increased ability to source feedstock to support the process.

Before discussing our outlook for 2013, I'd first like to turn the call over to our CFO, Chris Carlson, for more details, review of our financial performance in fiscal-year 2012. Chris?

Thank you, Ben.

For more information, please refer to our press release issued today, our latest Form 10-K for the fiscal year ending December 31, 2012, 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. Note that the acquisition Ben referenced was completed in September and we have integrated these new operations into our business.

I'd like to now discuss our results. Revenue, for the year ended December 31, 2012, we reported consolidated revenue of $134.6 million, compared to $109.7 million in 2011. This represents a 23% revenue increase. The revenue increase was due primarily to increased commodity prices, as well as the 22% year-over-year increase in overall product volumes that Ben mentioned in his opening remarks. You can find more detailed information on the various pricing benchmarks that are most applicable to our business in our 10-K that was filed today.

We generate revenues from two existing operating divisions, our black oil division and refining and marketing division. Historically, our TCEP results have been reported within the refining and marketing division. With the recent acquisition of the Vertex Acquisition Sub, as of this filing and moving forward the Company will be reporting TCEP results within the black oil division.

Based on the overall activity related to the black oil division, which now includes used oil collections, processing of the used oil, and final sale of our end product, we with counsel from our auditors felt that it is a more appropriate presentation of our business segments.

Our black oil division revenue for fiscal-year 2012 was $90.24 million, as compared to $72.35 million in 2011, an increase of roughly 25%. This increase in black oil revenue is attributable to higher commodity prices and a 53% increase in overall black oil sales volume. The increase in black oil volume is attributable to the increased amount of product being processed through TCEP, as well as increased volumes sold to third-party re-refiners and fuel blenders.

The refining and marketing division produced revenue of $44.34 million in 2012, versus $37.39 million in 2011. This represents an increase over the prior year of over 19%. This increase is a result of increased commodity prices and a 16% increase in volume.

TCEP, which again is a business unit within our black oil division, generated $57.7 million in revenue for fiscal-year 2012, versus $52.1 million in 2011. This nearly 11% year-over-year increase was driven by production increases, as well as higher commodity prices.

Gross margins. Gross profit increased in 2012 to $9.79 million, compared to $8.07 million last year. This 21% increase is primarily attributed to the improved margins of the refining and marketing divisions' TCEP operations.

Gross profit for the black oil division was just over $5 million for the year, a 21% increase over last year's gross profit of approximately $4.15 million. The refining and marketing division as a whole generated gross profit of $4.75 million in 2012, a 21% increase over 2011's gross profit of $3.92 million. TCEP had a gross profit of nearly $2.43 million in 2012, a nearly 13% increase over fiscal-year 2011's TCEP gross margin of approximately $2.16 million.

SG&A. Selling, general, and administrative expenses increased in 2012 relative to 2011. Our 2012 SG&A expense was $7.39 million, versus $4.1 million for 2011. Of the $7.39 million in SG&A, $1.26 million represented a one-time acquisition expense. In addition to the one-time acquisition expenses, we also incurred additional SG&A costs in 2012 related to our ongoing expansion efforts at TCEP that were not capitalized.

On a go-forward basis, we anticipate SG&A being higher than in previous years because of the additional scale of the Company following the acquisition. For example, we now have 102 employees, as opposed to 12 employees before the acquisition. It is our belief that improved gross margins associated with the benefit of collecting our own used oil for processing will more than offset the increased SG&A associated with these collection efforts as we move forward.

Net income. We had net income of roughly $3.66 million, or $0.25 per fully diluted share, in 2012. This was a 36% decrease compared to 2011's net income of roughly $5.75 million, which represented a per fully diluted share figure of $0.39.

Included in our 2012 net income figure is a $1.5 million income tax benefit stemming from our net operating losses related to our merger with World Waste Technologies, leaving us with a remaining NOL balance of approximately $33.9 million for future years.

Overall, the decrease in year-over-year net income was a result of increased SG&A and the $1.26 million of one-time SG&A-related acquisition expenses that more than offset our increased revenue and gross profit.

Our balance sheet. Our current assets as of December 31, 2012, nearly tripled from the same time the previous year to $49.1 million. This increase in assets is primarily attributed to the acquisition completed during the third quarter.

Over the past year, stockholders' equity more than doubled from $9.34 million to $20.4 million as of December 31, 2012. In an effort to minimize dilution relating to our recent acquisition, the Company took on $8.5 million of term debt, which as of December 31, 2012, has been reduced to $7.9 million.

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

Thank you, Chris.

As the numbers Chris presented illustrate, we have made tremendous strides in this past year, and the Company is continuing to grow. As we look forward to 2013, I want to share some of our thoughts on what transpired in 2012 and where the business is heading, going forward.

During the final three quarters or so of 2012, we incurred some expenses related to continued improvements at our TCEP facility. We're currently in the midst of completing a meaningful expansion that we anticipate will increase throughput at the plant and reduce our operating expenses and improve the quality of our finished product. We have approximately $1.2 million in CapEx remaining for this project that will be invested in 2013.

During 2012, particularly in Q2 and Q4, we suffered some negative commodity-related impacts to our business. Specifically, we saw a significant decline in our end product values resulting from a general decline in oil prices, which we index off of, combined with a slower decline in the price of our feedstock. This disparity in the rate of decline between our raw material prices and our end product prices contributed to a compression of our margins.

These Q2 and Q4 declines had a detrimental impact on the industry as a whole. We have made adjustments in our approach since the latter half of Q4 2012 to address these market changes and believe that we're well positioned to increase our margins going forward.

The acquisition completed in September, as I mentioned earlier in the call, is expected to improve our margins as well. While the acquisition will result in higher SG&A than in previous years, we believe that by now owning our oil collection assets, we'll be able to supply our TCEP facility with used oil at lower cost than during previous years and that this will result in margin improvements that will improve our bottom line going forward.

We are now actively looking for additional TCEP locations at or near port facilities where we can address locations -- unaddressed locations in the US. We're finalizing our plant engineering and plans to selectively pursue locations that we feel best at our model.

Lastly, we are continuing to evaluate accretive acquisitions, like the tuck-in acquisition listed in our 8-K filings, that will allow us to secure incremental feedstock supply at reduced prices.

Before we move forward with our Q&A portion of this call, I want 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 212-564-4700. I also wanted to mention that the digital replay will be available by telephone approximately two hours after the call's completion, for the next two weeks. Details on how to access the replay can be found in our recent press releases.

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

(Operator Instructions). Philip Shen, ROTH Capital Partners.

Good morning, everyone. Congratulations on a good year.

Thank you, Phil.

My first question is related to the following. I know you guys are an aggregator of black oil and you sell refined products. But to what degree do you believe you're a derivative play on natural gas?

Well, I think that the whole premise and investment thesis around Vertex Energy and what we have been pursuing since 2009 is a direct impact from what natural gas has done to the conventional market or our industry, historically.

So if you think about this being a mom-and-pop business and the small companies in each metropolitan market collecting oil and selling it locally to their industry, their manufacturers, now natural gas has come in and replaced the fuel at these manufacturing facilities because it's so cheap and it's so clean as far as the air emissions, et cetera.

So the used oil is having to find a new home, which is creating a new industry and a new opportunity that we are pursuing, and that's what TCEP is about is taking and aggregating this oil across the country, bringing it into processing locations like our Baytown facility where we can now monetize that oil and get a higher value for it going into new markets.

So it's really a new industry, and we are excited about the position we're in as the industry is still in a forming and -- you know, it's been reinvented as of this decoupling of natural gas.

Great, that's helpful, Ben. And can you talk to us about your revenue trajectory for 2013 by division? And how do you expect each division's gross margins to change?

Yes, the revenue is little bit more tricky because it's based on commodity prices, so in both divisions, if oil prices go up, our revenue goes up.

We do believe we will continue to sustain growth in our overall volume. That's our product sold, the total barrels that are going into the market, so we are in the mid-20% growth year over year for the last couple of years, and obviously revenue follows the growth in the business as well, besides commodity prices.

So I'm not going to try to tackle a revenue forecast, but I do believe that there's a lot of growth for the Company in the years to come. We see that consistently, based on our track record.

Now I will say that with the acquisition and now having the collection vertical as part of our business model, it allows us to go and access raw material at a much lower cost than buying directly from third-party collectors. This is going to be a focus of the Company, and so we do see our margins expanding considerably as we go forward.

Great, that's helpful. I'll jump back in queue. Thanks.

Chad Bennett, Craig-Hallum.

Hey, guys, good morning.

Good morning, Chad.

So Ben, can you kind of give us more detail on what happened in the fourth quarter on the pricing side for your finished products, and maybe the end markets those finished products go into, because if you look at -- I'm not sure what 6 oil did. But if you look at Brent and diesel and whatnot, I mean, those prices were pretty kind of stable, if not maybe slightly better from the September quarter. So can you just give us more detail on what changed in pricing in the last three months?

Yes, absolutely. It's a very good question. It certainly had an impact in the fourth quarter. It's not as drastic as what we've seen in the second quarter, but nonetheless we did see a decline across the markets that we sell our product into.

And we benchmark off a Platts index for No. 6 oil. So it's a residual fuel. We buy the raw material at a discount, a percentage discount, from that index and we sell our finished product at a premium over that index. And we have seen the index decline $3 a barrel quarter over quarter from the third quarter to the fourth quarter.

The second probably more profound impact in the industry is what took place especially around the Basel market, which impacts the raw material value and demand for that raw material.

When Basel declined, there was a compression and spreads that our industry felt topline, and you probably see that across the board in our industry. The fourth quarter was a pretty upsetting quarter for anybody that deals with used oil.

And so what happened as that the air got let out that the Basel business model, because of the compression and spreads, the demand on used oil changed in the fourth quarter. It started taking place at the very end of the third quarter, and so when the demand changes on used oil, then the relative discount to that Platts posting changed. And so -- and as that changed, the relative premium to the posting for our finished product changed slightly, not as much.

And so, what we've seen is a two-point adjustment related to the market. You had a decline in index values, and then you had a shift in your discount, your percentage discount, to more reflect now a market that is not short of used oil, but now a market that is potentially long on used oil.

And that's bad for margins in the fourth quarter. It's really good for margins going forward because the industry is having to look at new options now for the used oil that everyone thought they had figured out. And I believe our Company is well positioned now to take advantage of those opportunities.

So kind of making sure I understand it correctly, so the demand for feedstock -- for used oil dropped off in the fourth quarter, thereby you were buying it at a larger discount or less of a discount?

Yes, we are -- today in the first quarter, we're buying it at a larger discount.

Okay.

So it shifted in the fourth quarter. It went from being short and the discount being relatively high and expensive for used oil, and now that has transitioned the other way. So the discount is more in our favor as a refiner than it was in the fourth quarter.

Got it. And what was volume growth year over year and maybe quarter to quarter in the December quarter?

The year over year, I think, is 23%, Chris?

Yes, 23%.

Yes, we had a 23% growth in volume, and that's a real key indicator for our Company as we grow the business. That truly speaks to our ability to reach the markets, gather more material, monetize that. So the -- I don't know that I have the quarter over quarter. Do you have that with you?

Yes. Quarter over quarter, Chad, was 15% increase in volume.

Okay, got it. And Ben, with the new expansion of your TCEP facility, what will that bring in terms of -- can you quantify, actually, what it will bring in terms of new capacity there, and also kind of new efficiencies or a quantified margin impact of that capacity expansion?

I don't think I am prepared to do that on the call today. In general, we started down this path probably nine months ago, so we had long lead-time equipment that had to be ordered.

We justified the investment based on a $60,000 a month cost savings, so that's a given. We believe that we're going to see upward to 8,000, 10,000 barrels a month of additional throughput capacity in the operation. The system's designed for more than that, so we really want to start the unit, and this will take place the first part of the second quarter.

So we'll be wringing everything out in the second quarter and dialing it up, but we are pretty excited that we have quietly made a lot of investments, especially in the fourth quarter. We've done a lot of the work ourself. We invested in all the labor and welding and all the mechanical and IT there on site to make everything ready for this new expansion. And we're fixing to start this thing up. So, that's hopefully a very pleasant surprise to our investors.

And what was -- I know part of the appeal of the transaction in the September quarter was you would have more of your own captive or internal used oil collections running through the TCEP plant. You know, and I think we were thinking at scale or once you get a full quarter or two quarters into it, roughly one-third of your plant would be your own internal kind of supply of used oil.

Are we at that -- was there any change in mix of your own collected used oil versus buying off the market on the third-party side in the quarter that changed or was different than your expectations?

No, the ratios you just mentioned are there. We're seeing one-third of our own collections come in.

I think what's interesting in the fourth-quarter results in some of these merger-related impacts that were not, I guess, easy to identify, one being all of the collected oil, our collected oil coming into the system, where we would recognize or inventory prior to the merger -- or recognize the revenue, I'm sorry, prior to the merger at the point it would come in the front door of the public company.

Today, all of that inventory has to come in the tank, go through process, and then load onto barges before it's monetized. So we've seen a proportional decrease in our inventory cost holding a lot more of our margin in tank than what we've carried before.

And you'll see that on our balance sheet. You'll see that we actually had 1,000 barrels more product in inventory at the close of the fourth quarter than we had at the third quarter, but yet we're close to $600,000 less in inventory costs. And what that is is some of, I would call, that stranded margin now in tank, it's not money that we lost. It just hasn't been recognized on the schedule that we're used to seeing it recognized. So that certainly has had somewhat of an impact to our earnings for the fourth quarter, but it's easily explained.

And one or a couple of last ones from me. Where is the 6 oil index today relative to -- in the first 2.5 to 3 months of the year, relative to the fourth quarter.

Yes, it has come up. It's probably running in the $97 per barrel range, where I think we closed on a $93 average in December. So the markets are more in our favor today.

So Ben, how should we think about gross margins for the business throughout this year? I know we talked about once we made this acquisition and realized the synergies and got the volume coming through, the captive volume, we were talking about kind of a mid-teens type gross margin target. Is that realistic this year?

Yes, I believe it is. That's what we're looking at, and we're very comfortable with what we are seeing. Our management team put together a very conservative forecast, and it's in that range as well, so I'm very comfortable with that range.

Okay. Thanks, guys.

[Jack Lazeny], Morgan Stanley.

I've got two questions. The first one is related to the SG&A. I'm a little perplexed by the SG&A. I get the fact that there was a one-time acquisition expense of about $1.25 million and I get the rise in the number of people. Those things, I certainly get and I would expect, but you had also mentioned that was R&D that was not capitalized. And if it's anything other than repair and maintenance, I would've thought that it would've been capitalized, and then you made the statement that going forward for this year, you expect maybe another $1.2 million of a similar kind of scenario. The gross margin numbers look very pleasing. The SG&A is perplexing to me. Can you talk to us a little bit about that?

Yes, and I'll let Chris add to my comments, but the, one, the $1.2 million of capital remaining for the TCEP project will be capitalized. That's all the hard equipment coming in.

We did take on the R&D and all of the labor and expenses associated with the expansion internally. We didn't bring in contractors and we just expensed it out through our labor costs, and so that is all behind us. And 2012 was a lot -- I look at it a lot like 2010 where we had those type of development costs, really researching the technology path. We spent lots of money in the lab, lab labor and work, to firm up our decisions on the investment that we made.

So I don't see that going forward. I do see a new SG&A ratio to revenue because of the merger and because of all the expenses related to running a collection business and running the plant itself.

So, we have to understand that. But the trade-off is we should have proportionate gross margin and return around those investments. Does that answer the question (multiple speakers)

I would certainly think that you should have it, and so on a going-forward run rate, then, what kind of -- where would you think we should be on a percentage basis with SG&A?

Chris, you?

Percentage to revenue or gross profit or how are you looking at that, Jack?

Either one.

Okay. Yes, I haven't run those particular percentages on a go-forward basis with the new integration of the Vertex Acquisition Sub, specifically.

Okay, all right. My second question is with regard to the margin compression due to the market changes. You know, it seems that the second quarter, we thought, was kind of an aberration, and the concern that I have is going forward, it seems that we are subject to these volatilities.

Is there not some way to hedge some of this volatility out? For example, when you know you're bringing in feedstock at a certain price and you know that it's going to be sold in X number of days, can you not use some kind of forward type of hedging to mitigate the potential fluctuations, while thereby, of course, also limiting what could potentially be a positive margin expansion due to those same things, but to try and keep things in a little tighter range? Is that something that you all have thought about and looked at and is that possible?

Yes, we have looked at different hedging structures and possibilities, and they are out there. They do exist.

As we reviewed and looked back on 2012, had we have implemented some of those strategies, we would have missed out on some upside in that market. We're continuing to look at that as we go forward. But as you stated, it would minimize upside, but it would put some more stability into that gross profit.

And one of the challenges, Jack, is there is not a fungible market made for the commodity of used oil, so you would have to pick another index commodity, and there is always hangover on both sides of that that you can't control.

So you might can get it within a 70% range or 80% range, and the problem in talking to the banks and the professional guys, they believe that it's better to just run with back-to-back index purchases and sales of product and go through the markets up and down because if you spend the money to hedge and you don't have a pure hedge against the risk, you could be -- you really could still get hurt and miss your upside, as well.

So that's -- because we buy every day and we're selling every day, and I say selling -- you know, our sales are a little bit more lumpy by barge versus the truck receipts of raw material, but we are in the market daily. We don't speculate. We're not holding product or trying to throttle in and out of market conditions. We're just steady, buy and sell, buy and sell.

We believe that if we see the low side, we'll see the upside on -- the vice versa, and I think we've seen that as we come out of the second quarter into the third quarter. We're just -- the markets have been a little bit turbid because of a lot of things going on in the used oil space that are still kind of resettling the industry and where we're going as an industry. And we kind of talked about that in our last call. We've really seen the transition take place in the fourth quarter.

It's just -- our sale price gets impacted immediately. Soon as the market changes, the sale price changes. Trying to adjust your feedstock cost is a more time-consuming process because you got to work it on multiple levels all the way back to -- eventually back to a generator at a lube shop. So it takes time to do that.

And 10 days left in this quarter, how does it look margin-wise, based upon what happened in Q2 and Q4? Similar or are we on a different course?

No, I think the first quarter, we are in a -- we made our adjustments coming out of the fourth quarter, and we are on target and on plan.

Thank you.

Justyn Putnam, Talante Investment Group, LLC.

I just want to follow up on a previous caller's question about the increased SG&A that went along with this TCEP facility project. Can you put a dollar amount on that, approximately?

You know, it's just difficult to do. We looked at that, and it's just the day-to-day expenses and mainly labor costs around our R&D work, as well as the pipefitters there on payroll. Our management team, we've had a lot of overtime around the expansion. So our labor cost was higher at our facility.

So there is just -- normally, it would have just kind of worked through the system, had we not had these market impacts on our spreads. And we really -- that's the way we have always tried to handle a lot of our development work, and you can see that going all the way back to 2009 and 2010. We still maintain profitability as we developed our TECP Technology from a pilot stage all the way through to a commercial operation.

In 2012, we took -- we've been taking strides just on that same, I guess, way of doing business. And so, it's not a number that I can give that says we can attribute that. I can tell you that we were off our labor budget and we knew why, but I wouldn't want to box it all in around just that one piece.

Okay, let me approach it from a capital spending standpoint. In the fourth quarter, CapEx was up quite a bit, probably an extra $1 million or so. And I assume that most of that was due to the TCEP facility project. Is that correct?

Yes, that's right.

Okay, and then you have another $1.2 million that you're expecting to spend, what, in the first quarter, first half of the year?

Yes, it will roll over to the second quarter, but that is correct.

And then, going forward, what is that CapEx profile once you get past this project?

You know, the typical annualized CapEx is right around $500,000 a year, and that's just strictly routine. If there's other projects, then that would be above and beyond that number.

Do you have any other projects scheduled for this year?

We're always looking at other opportunities, but nothing that I can really comment on at the moment.

And then, one quick question about your acquisitions. You mentioned that you're looking at some of those, and I assume -- are they primarily third-party collectors? Is that what you are looking at?

Yes, that's correct.

And then, what kind of valuation metrics do you use when you're looking at those type of acquisitions?

You know, they all vary. A lot depends on the volume that they're bringing in. It's going to depend on the facilities and the infrastructures that are around the operations.

Historically, we have seen anywhere from four to five times earnings, and sometimes higher than that, again based on the overall facility infrastructure and operations.

So it is more of an earnings picture as opposed to just volume?

Yes, it's an EBITDA, that's right. But we definitely look at volume because that's what we're focused on is growing our volume.

Got you. Okay, appreciate it, guys. Thanks.

Ian Clark, Fertilemind Capital.

Hi, one question on the sustainability of the business over the next five, 10 years. If you guys do hit your gross margin [expectations] in the mid-teens, that's going to attract a lot of attention, so could you guys comment on the mode that your business has, and how you expect to keep those margins over the long haul, and what's going to allow you to keep going forward and increase those?

Yes, that's a good question. We definitely have a different approach than a lot of folks in our industry.

We believe this is a regional model, and that's what we have tried to roll out in the Texas Gulf region. We are the only refiner of used oil in this region. And we believe in a dense concentration of supply at a street level around that refining asset. So inside that collection footprint, we believe in vertically integrating the other residual materials and monetizing those completely. So here in Texas with our acquisitions, not only are we collecting, we have a $30 million refining capacity. We have a $10 million collection capacity today, and we're going to grow that substantially over the next few years.

We also have our own oil filter recycling plant in Corpus Christi where we can actually monetize the oil filter collection business, taking the residual oil from the filters and moving the steel into a finished steel market.

And then, we take the waste antifreeze that's collected from these same generators and we have a vacuum distillation plant in Houston where we distill the waste antifreeze and recover the clean ethylene glycol chemical component.

We've been repackaged and have our own additive package that goes back into a finished coolant product. So we make a finished antifreeze product. And we sell that back to that customer base.

And so, we have a pretty sticky market here -- or sticky business in this 350-mile radius. And so, our idea long term, as we perfect this regional model, is we want to replant it in multiple locations where you're running as efficient of a gathering and recycling business as you can be.

The difference with other companies is they focus on a thin market share across a broad base of markets, and then they have huge transportation costs to move it across country to one location. And our model allows us to be a very strong regional player because we have one-third of the capital costs required to build our facilities. And so, we can plant them strategically in key markets around the raw material and we can focus our investments on these other areas to capture all the margin inside that footprint.

So that's our concept and that's what we are believing is going to win market share and a long-term position in the US, and we see a pretty solid moat around that model, and it's demonstrating that very well here in our first market that we're working.

Okay, and then, do you have any offtake agreements for the motor oil and antifreeze? Are there any long-term contracts and visibility to how much you guys can get or is it more of a spot market, we have some, let's buy some sort of style?

No, we sell our finished products on offtake agreements. We're working on the two-year agreement with the sale of our product. We have supply agreements that range anywhere from spot to 12 months, typically.

And a lot of our generator business is very relational, so we have been servicing those generator customers for years, and so that's typical in the industry. They usually sign up with a one-year type of service agreement.

Okay, great. Those were my questions. Thanks.

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

Lovely quarter. I have a couple of questions. Could you just fill us in on your cash position currently?

And also, could you elaborate on -- I think on the release there was a mention that you are aggressively looking to open up another plant. And current timeline, and could we talk about that a little bit?

Yes, the current cash position is right at $800,000 in cash, and you can see that on the balance sheet of the Company.

And obviously, we work our inventory and receivables from a revolver, which we have not tapped that revolver. We've got plenty of capacity there inside of that revolver. So there's no need to keep a lot of cash in the account, as long as we have inventory and receivables out.

So as it relates to the second plant, we have got several -- let's just say three locations we're looking at. These are unaddressed markets we believe TCEP would serve very well. We are commissioned with our engineering firm to have an engineering package within the next 60 days that allows us to go out for bid.

And at this point, we've not chose a location and we've not signed a letter of intent related to one of those locations. We're still in the evaluation stage, but we have been moving along all this past year down this path. We've really been focused on this expansion at Baytown to really take it further down the road because it was an incremental investment and we wanted to take advantage of that opportunity first, and so we are preparing for the second location based on the timing and the available feedstock. The markets are now moving in our favor, and so that pace has picked up quite a bit in the fourth quarter as far as trying to get something positioned and ready to go.

Will you be -- Baytown itself, is that -- will you be doing more expansion eventually down there or is there a limit to how much you can expand? And also, the new facility, do you have any idea of the type of capacity compared to Baytown that you would build going forward?

Yes, each opportunity has a regional supply capacity, so the design of that plant would be based on what we felt like would be the optimum feedstock volume that would come out of that market. So it would be different.

In general, we're looking at a comparable capacity to what we're currently doing at Baytown, which is around 28 million gallons to 30 million gallons on an annualized basis.

Okay. And a timeline? Do you have any idea when, just a guesstimate, a new facility would be open and running?

Yes, I don't think you would see a new facility in 2013.

So potentially (multiple speakers)

As far as a startup.

So potentially 2014.

Potentially.

Yes, I think I once asked you about the potential costs of a new facility like this, and I don't know if it was between $5 million to $8 million?

We basically have been talking around $5.5 million to $6 million for the last year or so. And we'll really know here within the next couple of months as we go out for bid on the design that is underway.

The infrastructure is additional to that, so if you set it in existing infrastructure that you can partner on, you can lease tankage and drop your plant into that location. Or if you go greenfield, obviously, and build tanks and piping and barge docks, et cetera, it gets pretty expensive. So most of the locations we're looking at, there's existing infrastructure we can access and then we just have our plant cost, unit cost.

All right. Currently, you guys -- in your acquisition, you now have your trucks and your own collection. How would that work on a new facility for you guys?

The model is basically the same. We want to build the plant. We want to work with the third-party suppliers and build those relationships long term, just like we're doing here in Texas.

As these companies make decisions to exit and some of these guys will retire, we've got a built-in acquisition pipeline, so we keep a good pulse on who the sellers are, and so we will seek to acquire them over time. So we like the model of going in, build the plant, work with the market, develop our intelligence around that footprint, and then with a long-term strategy to collect and supply our own refinery.

Thank you. One more question. Do you guys also do cooking oil out there or is it strictly motor oil?

No, the primary business is motor oil. In our Austin location, we actually have piloted a cooking oil collection operation, and we are gathering data and moving that oil into the biodiesel manufacturing space, so they're using it as feedstock to produce biodiesel.

So that's something that interests us, but not on scale or any kind of -- we're not ready to make any kind of announcement that we're heading in that direction.

Again, a common theme is we're constantly looking at opportunities that make sense for our business, and we will spend a lot of time and money pursuing those opportunities and getting them baked to where before we start talking about them, we've got a lot of that figured out.

I will say that that business in Austin, the collection of the cooking oil, is a profitable business. We're actually making money doing that today. So we like what we see. It's just a long-term game and probably will require a lot more commitment than what we have made so far.

A lot of french fries being made. Anyway, thank you and continued success.

Thank you. Appreciate it.

Jeremy Hellman, Avenue T Fund.

Chris, do you have the breakdown in the Q4 revenues between black oil and then refining and marketing? For the quarter (multiple speakers) year.

Yes, I do. Give me one second.

While you're looking for that, I can come in with my follow-up question, which is on another thread, if that's okay, Ben.

Yes, no problem.

I was just going to -- more of a suggestion than a question, actually. Just kind of given the detail that you have provided around how the pricing works in the used oil market and everything, one thing that might be helpful on a go-forward basis in your reporting is some sort of volume statistics or some other metric that we can track that part of the business, and then that will help a lot of us understand the trajectory of things, knowing that the ultimate numbers will dance around that due to the pricing.

Okay. Do you understand what he's asking for? Okay.

We'll definitely look into that (multiple speakers)

You know as far as the breakout between black oil and refinery and marketing for the fourth quarter specifically, that's not something we report on. I can just give some highlights of the fourth quarter in general. That revenue did increase 3%, the $32.2 million versus $31.3 million the prior fourth quarter of 2011. And gross profit increased 127% to $2.9 million, compared with $1.3 million in the prior year.

In addition to that, a nonfinancial metric, volumes increased, as Ben noted earlier, 15% in the fourth quarter 2012, compared to 2011.

Okay, well, maybe -- what I was trying to get that number for was just the way I had modeled out your business. I was good -- I had originally been thinking the TCEP-related business would be in the refining and marketing line, and it's going to end up in the black oil line, as you say, in the K, and so it's a little bit different from how I had been looking at things.

So on a go-forward basis, if I can't bench off some Q4 actual numbers, can I get some perspective on what percentage of revenues would be in each bucket, give or take, and some ranges going forward? Or any kind of help I can get there would be appreciated.

Yes, you know, ironically now that we have done this shift or moved TCEP under black oil, the percentage of revenues is about 50-50.

Okay. Okay, that's good. That kind of helps (multiple speakers)

And I also think the first-quarter numbers will come rather quickly, and that will start to break everything out for you, too, Jeremy. You'll see that, and maybe we can even take an off-line call from Jeremy and try to address some of that.

Okay, guys. I appreciate it. Thanks.

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

Okay, thank you for the questions and your interest in the Company. We appreciate the support we get from this call, and we look forward to updating you on developments with the Company as we unfold, and we appreciate you joining in on today's conference call. Thank you.

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