Vertex Energy Inc (VTNR) 2014 Q4 法說會逐字稿

Greetings, and welcome to the Vertex Energy 2014 fourth-quarter and year-end fiscal results teleconference. 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.

I would now like to turn the call over to your host, Mr. Ben Cowart, Chairman and CEO of Vertex Energy. Thank you. You may now begin.

Thank you, operator. Good morning, everyone, and welcome. Thank you for joining us today on the call. With me today I have Mr. Chris Carlson, our Chief Financial Officer; Mr. Dave Peel, our Chief Operating Officer; and 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 must inform you that the Company expects to make forward statements during today's call. Statements including words such as belief, 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. Number of factors could cause the Company's actual future results to differ materially from the current expectations.

I want to thank everyone for joining us today on Vertex Energy's fourth-quarter, year-end 2014 earnings call. We filed our 10-K for the year ended December 31, 2014, yesterday after the market closed. I will start with some of the highlights of the fiscal year ending December 31, 2014, and then Chris Carlson, our CFO, will walk you through our fourth-quarter and year-end financial performance. When Chris has finished with the numbers, I will discuss further steps we are taking to manage through a difficult fourth quarter and how those steps will benefit us in 2015.

Like the rest of the industry, our fourth quarter performance was affected in large part by the sudden and steep decline in oil prices. Our revenues for the fourth quarter 2014 versus fourth quarter 2013 was up 34% to $62.5 million. Revenue for 2014 versus 2013 was up 60% to $259 million compared to $162 million in 2013. We lowered our pay for oil at a street collection level by 75% year over year and reduced our third-party pay for oil by 50% year over year. In addition, we are moving to a service fee model for the collection of used oil in environmental services.

Overall volumes of products sold, and imported matrix for our business because it illustrates our reach into the market, increased 82% for the fourth quarter 2014 versus fourth quarter 2013 and rose 65% for all of 2014 over total volumes sold in 2013. We completed our acquisition of the assets at Heartland Group Holdings, LLC, in the fourth quarter 2014 after entering into a consulting agreement in the third quarter of 2014.

At this time, I will turn the call over to Chris Carlson, our CFO, who will walk you through the fourth-quarter 2014 financial results. Chris?

Thank you, Ben, and thanks, everyone, for joining us on this call today. For more information, though, please refer to our press release issued today, our latest Form 10-K for the fiscal fourth quarter and year ending December 31, 2014, as well as our other filings made with the Securities and Exchange Commission yesterday. As usual, all of our Vertex Energy's financial numbers are prepared unless noted in accordance with Generally Accepted Accounting Principles.

As Ben mentioned, our financial results for the fourth quarter and the year was impacted by the sharp declines in oil prices. The impact is based on our inventory carry at the time of the sudden drop-off in oil prices and during the quarter as prices continued to decline. Let me explain the mechanics of that before we get into the revenue figures.

In our business, we acquire petroleum products which become our inventory at a given price. We process it and resell it. That takes a little time. And when prices are falling rapidly, the cost of our inputs ends up being higher relative to the price we realized when we sell our finished products. Under normal circumstances, we can manage this spread under the extraordinary pricing we experienced during the fourth quarter of last year. Managing the spread becomes a matter of minimizing the damage.

For the quarter ended December 31, 2014, we reported consolidated revenue of $62.5 million, compared to $46.8 million in Q4 2013. This represents an increase of about 34%.

For all of 2014, revenues increased 60% to $259 million compared to $162 million in 2013. Our Black Oil division, which includes our Marrero and TCEP business units, had revenue for Q4 2014 of $46 million as compared to $23.7 million in Q4 2013, a 95% increase. Revenues for Black Oil in 2014 were $170.9 million, an increase of 92% from $89.1 million in 2013.

Marrero made $22.5 million in revenue (technical difficulty) 2014 and $71 million of revenue for the full year 2014. Marrero was part of the first closing of the Omega acquisition and has been part of our business since May of 2014.

TCEP generated $11.4 million in revenue for Q4 2014 versus $17 million in Q4 2013. The decline was attributed to the 32% drop in market pricing and slight decline of volumes during Q4 compared to Q4 2013. The plant which was down in the third quarter for long-term maintenance ramped back up during the fourth quarter and was operating at approximately 75% capacity during the fourth quarter. TCEP's revenue for 2014 was $68.4 million, an increase of 17.3% from $56.6 million a year ago. This increase was due to the 32% increase in production volume during 2014 versus 2013.

The refining and marketing division produced revenue of roughly $14.7 million in the fourth quarter of 2014 versus $16.7 million in Q4 2013. But the entirety of 2014, revenue rose 30% to $72.7 million from $55.7 million a year ago. Production volume increased 42% during this period.

Vertex Recovery generated $1.9 million in revenue for the fourth quarter of 2014. In final quarter of 2013, the revenue generated by Recovery was $6.4 million, so we had a decline of 71% in 2014. The strong revenue for 2013 was due to a large one-time project that inflated the figure compared to normal revenue levels. For 2014, Recovery generated $15.3 million, down 11% from $17.1 million generated in 2013.

Gross profit in final quarter 2014 was negative $3.5 million compared to positive $5.4 million during the same period last year. This was a result of the dramatic drop in our inventory values during the quarter compared to the finished-product values we receive for our products. Our per-barrel margin during the quarter was down 136%, again, as a result of the decline in commodity prices. For 2014, gross profit was $14.6 million, down 11% from $16.3 million in the same period the prior year. For the year, the per-barrel margin was down 46%.

Gross profit for the Black Oil division was negative $1.7 million during the fourth quarter of 2014, down from 2013's fourth-quarter gross profit of $1.9 million. For 2014, gross profit increased to roughly $9.9 million, up 43% from $6.9 million in the previous year. Marrero had a gross profit loss of $862,000 for Q4 of 2014 and gross profit of $4.1 million for 2014. TCEP had a gross-profit loss of $1.2 million in Q4 2014 compared to a gross profit of approximately $1.8 million a year before. For 2014, TCEP had gross profit of $5.7 million, down from $6.1 million in 2013.

The refining and marketing division gross profit for fourth quarter 2014 declined by 153% to a negative $821,000, down from a gross profit in fourth quarter of 2013 of $1.5 million. For 2014, gross profit in this division was $3.5 million, a 32% decrease from $5.2 million in 2013.

Vertex Recovery produced a negative gross profit of $966,000 during the final quarter of 2014, compared to a gross profit of $1.9 million in the last quarter of 2013. For 2014, Recovery posted a gross profit of $1.2 million compared to a gross profit of $4.2 million in 2013.

Selling, general, and administrative expenses exclusive of merger-related expenses increased in Q4 2014 to $9.6 million, relative to the fourth quarter of 2013's $4.4 million. For the whole year, SG&A was $26 million in 2014 compared to $11.5 million in 2013. Merger-related expenses in 2014 were $3.8 million compared to $53,000 in 2013. The increases are attributed to acquisitions, additional facilities, and more employees.

In addition, our SG&A included a $5.2 million reduction of contingent liability related to the proposed earn-out payments in the acquisition of Vertex Holdings, the first closing of Omega's Marrero, Myrtle Broom, and Bakersfield assets and E-Source. The targets were not met, so we were not required to pay the earn-outs. Through recent cost reductions and changes in the business through administrative and operational changes, we should see reduced SG&A by approximately $2 million annually going forward.

Net loss -- Vertex had a net loss of $11.5 million, or a loss of $0.44 per fully diluted share in the fourth quarter of 2014. This compared to a net income of $2.6 million, or $0.13 per fully diluted share in the final quarter of 2013. For 2014, our net loss was $5.5 million, or $0.23 per fully diluted share, compared to the $7.8 million, or $0.39 per fully diluted share seen in 2013.

Now I will turn the back over to Ben Cowart, our CEO.

Thank you, Chris. Before we move on to the question and answer portion of this call, I want to touch on just a few more points about the business, the industry, and our outlook for 2015. As mentioned earlier, the decline in oil prices had an impact across the industry. However, our ability to adjust the spread has helped and will continue to move the Company in the right direction. As mentioned in my opening remarks, we lowered our pay for oil at a street collection level by 75% year over year and by 90% from January 2014 to January 2015. We also reduced our pay for oil to third-party suppliers by 50% year over year. These declines reflect our continued efforts to manage our spreads. Our team worked very hard during a very difficult environment, and I would like to thank them for all their efforts and continued support in executing our business model during the year and thus far in 2015.

We have begun moving to a service fee model for our collection business, collecting used oil and the environmental services. Removing used oil is a value add that our industry provides in handling these regulated waste streams. And, as of January 2015, we are charging for these services. This was our first full quarter with the Marrero facility running at planned capacity, producing PTO for the Gulf refining market. At the same time, it was the last quarter for certain long-term legacy supply contracts that worked against us. While we continue purchases from those third-party suppliers, we are no longer obligated to pay above-market prices.

We completed the acquisition of the assets of the Heartland Holdings -- or Heartland Group Holdings. This enhances our national footprint and allows us to further diversify our range of refined products; for example, our Group II base oil. The acquisition includes a $16-million-gallon-a-year refinery in a well-established 6.8-million-gallon collection operation in a four-state region. Despite some carrying costs we had for the three weeks in December, that we own these assets, we anticipate the Heartland assets will make a solid contribution in 2015.

The Bango facility, the second stage of the Omega purchase, remains under a shared-service and towing agreement. Omega has not been able to meet the closing requirements because of the market conditions. And we believe the current agreement serves our interest best.

We have amended our covenant with Goldman Sachs, both (inaudible) adopted an approach that emphasizes prudence with an understanding of the market conditions experienced during 2014 and possible future conditions. We refer to the 8-K filed on Tuesday, March 31, for further information about this amendment.

Our street collection capabilities now stand at approximately 20 million gallons per year. We continue to focus on expanding the overall footprint of our collection business because we believe the gallons we collect ourselves will be a key component of the feedstock being provided to our re-refineries long term. Our refining capacity currently allows us to process up to 140 million gallons, making us one of the largest processors of used motor oil in the United States. The capacity includes the throughput at the Omega Bango refinery, an asset that Vertex currently does not own.

As we look at the year ahead, we believe the Company will return to profitability. This year, it started slow, with the first quarter seeing another sharp decline in oil prices in January. As Chris explained in his remarks, our inventory carry is impacted when oil prices take a sharp turn. However, we have taken steps to protect against renewed downside risk in oil prices. Furthermore, we are reaping the benefits of the improved pricing on our raw materials.

Prior to this most recent decline in oil prices, we had a clear target on profitability. Going into the second quarter 2015, our spreads are set now for these low levels and should remain and improve as oil prices stabilize and get better.

We are ready for questions at this point, but I want to let the listeners know that if you have any follow-up questions or comments, please feel free to contact Porter, LeVay, and Rose, our 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's completion for the next two weeks. Details on how to access this replay can be found in our recent press releases and on the investor relations section of our website at www.vertexenergy.com.

Operator, we are 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, our business plans which are not publicly available. Thank you.

(Operator Instructions) Chad Bennett, Craig Hallum.

A few questions for me, first on heartland. Can you talk about -- I don't think you did, but did that contribute anything in the quarter from a revenue standpoint? And then, second question, considering current prices, what should be the contribution from Heartland from a run rate perspective, starting in the March quarter or for the year, however you want to characterize it? And then, last one on Heartland is, is that plant from a demand standpoint running at full capacity? Thanks.

I will start with the fourth-quarter contribution. The revenue contributed by Heartland was $1.9 million. And, again, this is just for the month of December. The gross profit was negative $223,000, and the net income was negative $537,000. This is in line with what we expected based on the situation of the entity when we took it on. As far as going forward, we don't typically look at or provide guidance on these acquisitions. But the revenue -- we are estimating -- and, again, it is going to be subject to commodity pricing, but $20 million to $25 million of revenue contribution going forward, and net income contribution of anywhere from $1 million to $2 million. And that will be for 2015.

Okay. And is that from a demand standpoint? Is that plant running at close to maximum capacity? Or is there some room to go there?

Yes. This is Dave Peel here, the COO. Let me talk to that one, Chad. First of all, the integration has gone very well. We have a very good staff there. The issue that the plant had is it was the efficiency of the plant. Historically, it has been -- the efficiency of that plant has been a little bit less than about 80%. So one of the goals we have this year is to increase the efficiency of that plant to north of 90%.

I actually know we have got a very, very strong and skilled experienced operations team who -- and we have applied that resource to help with this thing. So that is something that those guys didn't have before. So I think the fact that we have got a very good staff there, they are very skilled, that will be well set to do. Now, we have already made a lot of headway there; I can see that already. So I think that goal is a very realistic one for this year.

To address the other point, the quality of the base oil of that plant is very good. There is a strong demand. The plant is sold out, and I don't see that changing at all this year. So I think the prospects of that plant this year look to me very good.

Yes, and Chad, I think -- to add one more thing. The reason we have had such a quick turnaround with the Heartland business -- again, attributing the efforts of the team there and our senior guys in managing the feed cost into the plant. That has been the biggest quick and fast change. Our collection business there, when we took it over, had an $0.89-a-gallon pay-for-oil cost. And as of January, that was net down to $0.04 a gallon. So there has been a huge improvement there. And then our third-party costs, again, I don't have the exact numbers for that specific location, but it has been a very marked improvement on fee cost. So we are real pleased with Heartland in general.

Okay. So I guess, if you are moving to a service fee model on the collection side, I guess your costs have to be fairly minimal per gallon on your internally collected volume. Can you give us a sense where your internally collected volume is today? And from a gross margin standpoint, that has to be a pretty big difference. And is there any way to characterize what gross margins in the kind of steady-state pricing environment would be on internally collected volumes?

Yes. So I can certainly speak to the actual -- as of January this year, kind of where we stand. Our H & H legacy collection business had just a pay for oil at the generator of $0.08. And then we had charges for services -- service fees, filters, antifreeze, all the incidentals -- that we used to give away in addition to the pay for oil. Now we are collecting fees on that. And so we have a net negative $0.07 for the H & H business, and $0.04 -- a positive $0.04 to date as of January at the Heartland business. So, overall, volume weighted, we are at a negative all-in number for the generator business that we are collecting.

So, now, I will speak to gross profit as we go forward for the overall business. I don't have that specific number to the collection business itself, but we see a much-improved gross profit number based on the improvements of our spreads, probably to the tune of 16% as we go forward. And that is --

That is overall gross profit, then, roughly?

Correct. That is right.

Okay. All right. And then, last question for me, maybe for Ben. Can you talk about the impact, if you see any, from the TFI transaction that happened. More specifically, I think TFI is a pretty big supplier into the Marrero plant. And any insight how that is going to change your relationship there, if any?

No. It is early in the game. I don't think the transaction will close until the end of April to begin with. And we have had a very good working relationship with TFI and with the acquirer. So we hope and anticipate that those volumes will continue coming to the Company under market terms that we agreed to. So we will continue to receive those barrels under the current pricing that we have in place. And I am confident either way that we will get the oil that we need for the refineries, just based on the market conditions. The markets are long. Our inventories are very good coming out of winter compared to last year. And we just believe there is plenty of oil in the market. So I think that puts us in a position to maintain our spreads on the purchase pricing of the raw material and deal with any kind of potential disruptions if they come our way.

Walter Liptak, Global Hunter.

Congratulations getting through a tough period with oil prices. Just on a follow-on to the last question that was asked on the gross margin, you mentioned 16%. And in some of your earlier comments, you said that something like you are ready to go in the second quarter. Does that mean that we should be thinking about a 16% gross margin in the second quarter?

Yes.

Yes.

Go ahead, Chris.

Yes. I think, from the second quarter forward, that will be the gross margin range of anywhere from 14% to 16%, is our target.

Okay. Good. And then, you know, in terms of just the quarter that -- I mean, you are done with your first quarter. How did that look to you? Was the loss -- like the EBITDA loss similar to what you had in the fourth quarter? Is it worse as you took down inventory?

Yes. Q1, we saw some of the same challenges in the fourth quarter, particularly in the month of January. We were seeing improvements in February and now in March. So, again, that is why we are targeting second quarter and beyond to get to the financial targets that we are looking at.

Okay. Great. And I guess as you think about normalizing your EBITDA level, when do you get to kind of a normal run rate? Are you there in the second quarter, or is it sometime in the back half of the year?

I will speak to that in general. We do have a turnaround, actually, we have got a couple of turnarounds that will come into play this month, in April, at the Marrero facility and also at the Heartland facility.

Putting that aside, we would be running at those rates and profitability with good spread. So I think we are there. I feel very comfortable with where the business is as we enter into the second quarter. But I would say third quarter, we will start to really tell the story of all the work that has been done here.

Okay. Yes. That sounds good. All right. Chris, you mentioned in your discussion about SG&A that you took $2 million of -- if I understood that right, $2 million of SG&A out, or to be lower by $2 million in 2015. What is the base that we should be using? Is it the $26 million, which includes the M&A fees and other things? Or is there another base number that we should be thinking about for SG&A?

Great question. It is actually going to be a little bit higher because, keep in mind, we brought in the Omega acquisition and then the Heartland acquisition there at the end of the year. So we didn't have a full year, but the SG&A burden. We are estimating SG&A to be around $30 million to $32 million for 2015. But, as I mentioned, we are seeing a $2 million improvement that is going to be made. Or, actually, it already has already been made, and you are going to see it in 2015. But our focus is going to be really on cost and SG&A for the next six to 12 months.

Okay. That sounds good. Thank you. And then, I am jumping around little bit, but I wanted to ask about your debt financing. And you mentioned that you got the amended covenants. I wondered if you could -- we saw the 8-K, but if we just hear the increase in interest rates fees, and it looks like there is a capital raise that is required as part of it.

Yes. So just some high-level points and, obviously, you can look to the 8-K for some more detail points and description of the new amendment. But we got a waiver on the term loan installments for Q1 and Q2, which is obviously a very big beneficial item to our cash flow.

As you noted, we do have a prepayment requirement on the debt by June 30 of $9.1 million. And we were able to get a waiver on the penalty that would go with that. We look at that as a positive to just lower the debt on the Company.

The EBITDA leverage is not going to be tested until 12/31/15. And when they look at that leverage, they are only going to be looking at Q3 and Q4 on an annualized basis. So, again, as we have kind of noted, Q1 was still somewhat challenging. Q2, we expect significant improvement. But, again, the bank is really working with the Company and trying to set the covenants appropriately to work for both parties, which is part of why it took the three to four months that it took to get it amended.

Scott Levine, Capital.

I am not sure if -- I think you gave commentary, I think it was Chris, with regard to the gross margin outlook starting with the second quarter here. But is the right way to think about this that spreads effectively should normalize? You know, there is a variety of products that you are now producing. But should we think about spreads effectively stabilized at that point going forward? And maybe a little bit more commentary regarding the outlook for market pricing for your key products, EGO, base oil, and whether there is anything to be encouraged about there.

Yes. Okay. So let's start with the spread. The feedstock pricing, we believe, will continue to hold, if not improve, over the year. We believe the supply market is long to available markets at this point in time, and that is just an industry issue we have come through the low spot as far as supply with winter and low generation in the market. So we anticipate volumes to pick up through the year. So we are comfortable there.

We also are seeing improved pricing on our finished products to the market index. So the marine fuel sales that are incrementally coming into the business versus our BTO sales to the refining market, we are enjoying a better sale price at the Marrero facility than the contracts -- the legacy contracts legacy for sale of those products that Omega had. So there is improvement on both sides that give us some comfort around the spreads.

The base oil market seems to be firming up. Chevron just put a $0.20-a-gallon price increase into the market. The other majors have really yet to follow that lead at this point. But we definitely see demand picking up for the base oil product. As Dave indicated, our Heartland product is sold out. We have got good customers on a ratable basis that are taking those products. So we don't anticipate any erosion to our finished product pricing, subject to a continuation of the current crude oil prices that are in place today. If crude takes a big dip, then all the finished-product pricing will follow at some point in time.

Got it. Okay, and then maybe a little bit more color on a thought process on Bango here. You let the agreement expire. It sounds -- maybe just a little bit more color with regard to your thoughts there. Any change in thought process regarding the Western strategy or your interest in closing that phase? And I think the 8-K indicated that there could be an adjustment in terms. Just looking for a little bit more color and thoughts there.

Yes. So because of the market conditions, Omega has struggled meeting the closing requirements. We continue to operate under our coal link and shared-service agreements that we had in place in light of really our cancellation of our commitment to purchase the assets under the original terms. We are continuing to renegotiate our position to acquire those assets. And we are very positive about where we are in that process, and we don't feel like there is a big time element or sense of urgency on our part to get in a hurry there since we are already getting the benefit of production at that site. So we will continue to move that forward with an optimistic view on that asset folding into our business.

Got it. And maybe one last one, maybe trying for a little bit more guidance with regard to the puts and takes on the amended credit facility. What should we be thinking about for shares and maybe interest expense given your current expectations for 2015?

The interest expense, I am using a 10.5% number for the year.

Tom Bishop, BI Research.

On that interest expense, how would that translate into dollars in terms of your total debt as it stands?

About $3.5 million.

Interest expense per --?

Annually. Sorry.

Only $3.5 million of interest expense per year. For the entire Company, right?

Yes. That is correct.

And as far as capacity, could you kind of summarize where the Company stands today in terms of total capacity and even if you would break it down by facility?

Yes. I will walk you through that. So starting at the Houston facility, our TCEP facility, it has an operating capacity of 40 million gallons on the top end. We are probably not going to run at that full capacity just based on demand in that port for the product. So we probably would run somewhere in the 35-million-gallon range. The Marrero facility is peaked out at 62 million. We are probably operating around -- I think the fourth quarter, we were right at 60 million, roughly, on an annualized run rate.

We do have a permit modification that will allow us to ramp our capacity up. The facility is capable of producing more product given the lead way with our permit requests. So hopefully we will be able to report good news on that as we go forward. And the Heartland facility is 16 million gallons of feed in, and the Bango facility is 23 million gallons. So it is -- a round number is around 140 million gallons. I will let Dave speak a little bit more to that.

Yes. Just let me talk a little bit around the capacity and where we are heading and what we are doing. As I mentioned, throughout we are very comfortable on the facilities, and we are very comfortable with the people. We worked -- have worked tirelessly over this past year to achieve the goals and objectives that we have set for the facilities. And I will summarize those goals and objectives very simply.

We broke it down into four key components. We said safety and compliance is the primary goal that we have to achieve. It is a regulated business, so obviously risk reduction is a key component of that. So that was number one. Number two was quality because it's no good making stuff of people don't want it. So we are very focused hard on that. And, as you mentioned before, if you take Heartland, the plant is sold out. So I think we are speaking to that. And also, they are moving to the Marine market, has gone well.

So the other areas that we are working on is reachability. And we have had very, very good success in that. We did a turnaround last October at Marrero. And when we do these turnarounds, we have to clean the plant. But, in addition to that, we have always made improvements. We make upgrades to try and increase the efficiency of the plants and improve their ratability. That has worked very, very well. We have had the longest run at Marrero since then. We have got about a six-month, very predictable, very consistent production. So that is working out. We are now more moving that focus, as I mentioned before, onto the Heartland Group. So we hope to get the same sort of performance out of that facility.

And then the last thing that is going to be a key goal for us this year is cutting the cost out of all of these operations. And, again, we have got multiple programs in place. We have already started late last -- well, we have been at it a long time, but we have really accelerated. So the key goal for the group this year is to cut the costs out of these operations.

Yes. So just getting back to volume, we have made a lot of headway on ratability, so we really believe that this nameplate capacity across these four refineries are doable, ratable and there for us to achieve. So we're going to see that continue to improve.

Okay. Now, could you just explain how the Bango -- I mean, you haven't bought it, but you are counting it. I am not sure what the arrangement is there. You mentioned some terms I didn't quite understand.

Okay. Yes, we have a tolling agreement in place today, and a kind of a shared service or advisory services where we provide the technical support to the Omega staff that is running the refinery. The tolling agreement allows for us to provide all the feedstock into the refinery and take all of the finished products and co-products on the backside of the refinery and sell those into the market. And then we provide a tolling fee back to Omega for the operations of the plant.

Okay. I understand. And you mentioned also in your discussions the marine fuel business. I know there was some high hopes for that earlier, and it sounds like it is taking off to some degree. But I'm just wondering how that is going with this new regulation within 200 miles of the coast.

Absolutely. So going into the regulation and prior to the collapse of oil prices, we were very optimistic that the majority of our product at Marrero would go into this fuel market, based on our geographic location and what we felt demand would be for the product. With the sharp decline in oil prices, it left the ship owners with very low fuel costs for the fuels that they could buy from the major refineries. So there has been no sense of urgency on the industry's part to adopt alternative fuel solutions like we can provide.

Now, all that has done is slowed the adoption rate down, but we continue to grow and penetrate that market on a month-by-month basis with our fuel product. And we see that continuing over this year and on into next year. So with the improved pricing that we are getting at that new sale and our BTO pricing, as I said earlier, our sale price on a per-barrel basis has improved considerably over the sales contracts that were in place that Omega was selling their products under prior to our acquiring the assets.

But I am still not clear on the contribution that the marine fuel is making. Or are you saying it basically hasn't started yet? I mean, what is their alternative to your product?

It is virgin diesel fuel or diesel light blend that the refineries produce. So it is a very commodity-based product. So our spreads -- our improvement in that arena is in the $6-per-barrel range. And we are probably 20%-plus integrated into that market over our BTO sales. But we still have a lot of room to continue growing our sales volume.

But you still have your traditional outlets for the (multiple speakers).

Yes. Absolutely. That is right.

Jeremy Hellmann, Singular Research.

Just wanted to circle back to a question one of the prior callers had and then one of my own. The prior question had been about the share count after the interest expense, but that never got touched on. Considering that Q1 is now closed, do you have the share count for Q3, Chris? I mean, Q1, rather. Sorry.

For fully diluted share count to be right at $30 million.

$30 million. Okay. Thanks. And then the other one for me, just curious as to the pricing and market evolution dynamics now where you are being paid on the collection front. Is that something that you anticipate to just kind of remain in the few cents kind of range? And how is that market evolving in terms of price determination?

Yes. Again, Jeremy, it is really based on the commodity market. So as crude oil has come off like it has, it lowers all the values of all the finished products the refineries produce. And then when you look at all the fixed costs to collect a gallon of used oil and transport it through the nearest refinery, all in, it doesn't leave a lot of spread at collection level if you are paying generators for the privilege to haul their waste off.

So we have moved from very high pay for oil at the street level. The industry is somewhat hung up at no pay, no charge because that is a real threshold. And we have tried to push into the negative cost arena where we are getting paid to lift and handle that material.

So if oil prices stay low today, I believe the industry will be at a charge just because we understand the cost and the numbers and what it takes to provide those services. And I think that will reset, a hard reset at a generator level, the value of these services that the industry is providing. So we think that the oil price decline has been severe and difficult for the industry, but it has probably been the best thing that could have happened because the value expectation at the generator had gotten way out of control. So I think that the industry has been forced to reset. And if these oil prices remain, then it allows us to kind of get a hard reset at a generator level.

Right. I guess, as a follow-up to that, then, if you expect that the industry wouldn't return to its former structure where you are paying the generator for the used oil, and if it will persist that they pay you or a competitor or a peer, then is that going to over the longer term be a function and a dynamic of their side of the business? Just put in terms of someone doing an oil change, you don't want to crash their margin on that business. And so that pay-for-collection price, then, would seem to be more determinant -- more determined by that side of the business and operation as opposed to what kind of margin you can get on the finished good on your side. Am I right in thinking about it that way?

Yes. I think that is correct. The pay for oil at a generator level, though, was really set by our industry, not by the generator industry itself. They will pay us to take it, if that is the market. And they will take our money if we are willing to give it to them. And that is the market. So we really set that expectation as a collection industry.

They will simply take whatever that is and pass it on to the consumer. So you may pay another $1 or $2 for your next oil change, and that is the end of it from that standpoint. So it is really up to our industry as to how we manage our economics and the value that we put on the services that we are providing for the removal of this waste.

Now, I will say this. This is important part to understand under the current market conditions, and that is the new reality for the generator related to their cradle-to-grave liability exposure. So when the oil is picked up as a commodity and we are paying the generator to haul the oil off or paying them for the privilege to haul the oil off, the industry governs itself because there is so much value put on the used oil. No one is going to come in and pay for the oil and take it away and mismanage it.

Now that there is a much lower value to the oil, if not a charge, the liability that the generator has to make sure this oil is managed properly is exponential. And the assets that our Company has, as well as some of the other companies in the space, become more critical to the industry to relieve that generator of those liability concerns.

So a dime or $0.10 a gallon -- I mean, or $.20 a gallon, that is small money compared to liability concerns that bigger generators with deeper pockets may have if the oil that is picked up from their location is not going to the best markets or best -- the best home, if you will. So I think that the shift in these market conditions has put a real benefit for us with the assets that we have to address these new issues.

(Operator Instructions) Tom Bishop, BI Research.

Sorting through all this, we have lower revenues now to earn the margin on and some pretty good SG&A. Can the Company turn the bottom line? I mean, is the Company turning a bottom-line profit on stable oil prices at, say, $50 a barrel?

Yes. We are below $50-per-barrel crude prices today. Our spreads have been reset to those levels, and the business is profitable on a go-forward basis.

On the bottom-line basis because you do a lot of SG&A to cover with your gross margin?

Yes. Absolutely.

Yes.

Good. Okay.

Michael Hoffman, Stifel.

Chris, can we -- I just need to go back on some of the answers just to get some details. On the 30 million shares, that is not including -- well, let me ask you what it does include; maybe that's a better way to do it. But I don't think it reflects the equity offering that you have to do. So I am trying to understand, does it reflect the warrants that Goldman has extracted from you as part of the debt deal? But I would like to understand what is in the 30 million shares.

No, fair question. It is as of today. It does not include anything that we are discussing into the future. It does not include that warrant because it is not definite that that warrant will be issued. So, again, it is just as of right now today.

Okay. Then, your answer about the interest expense. If you are 10.5%, you have got $42 million of outstanding debt, that would suggest that is a bigger interest expense number. So I am assuming you have assumed you are going to pay down at least $9 million as per Goldman's requirement.

That is correct. You are right.

Okay. And that is how you get to the $3.5 million. Okay. Then when I think about the business model, if I take my best guess of what your average -- on page 7, you give us some data. You say you are at $0.05 on PFO; product sales on fuel of $1.20 to $1.40, and base oil at $1.85 to $2.05. So if I do that sort of same analysis for 2014, it would appear that those comparables year over year are down about 40%-ish -- 35% to 40%. And if I gave you a pro forma -- you owned everything off for the whole year, I think the revenues would have been like $325 million, if I've done that right. Based on the tables in the K. So if I take the $325 million and adjust for the 40% difference in my selling price, I am at kind of $190 million. Is that the right way to look at that?

I mean, directionally, you are correct. And I guess just to clarify, the numbers you are using on page 7 are general industry prices. They are not necessarily exactly our prices, but they are general industry numbers.

Yes. But you gave me general industry numbers and a table back in about two-thirds related to the documents. So if I am sort of saying directionally whether those are your numbers are not, if I take what I think is the pro forma at $325 million, using general industry average for 2014, and you have given me a general industry average for the start of 2015, I am really looking at the direction. So I'm -- or asked another way, you are going to be down revenues year over year. Is $190 million too deep of a cut, or where do you think this comes out?

My estimates are in the $220 million to $250 million range. So, again, I would agree with your assessment in what you are looking at.

Okay. So that does make a big difference because if you are -- back to your gross profit comment, the 16% comment, that is your estimate for the average of all of 2015. Did I understand that correctly?

That is correct.

So are you expecting the gross profit, profitable in Q1?

In Q1, we do expect to have a positive gross profit, yes.

But it is more likely a single digit, not a double digit, and we are in middle double digits for the year, right?

That is right. Yes.

Well, that would suggest that the fourth quarter is going to end up something north of 25% gross profit margin. Is that realistic?

No. I don't anticipate Q4 being that high. I mean, again, we are going to be just below 20%. I don't see us going over 20%.

Okay. I mean, it is just simple math. I take 16 times 4, that is 64. And then I start subtracting items out each quarter. If you were at 5% in the first quarter and 12% in the second and 16% in the third, that is a pretty big number to be in the fourth quarter to do 16% for the year.

The better way to look at it would probably be second quarter of 2015 through Q1 2016 of that 16% margin.

Try me on that again.

Set Q1 2015 to the side and take Q2 2015 through Q1 2016 for that 16% number.

Okay. That's fair enough. Okay. I get that, then. Then with regards to the revised debt agreement, because the auditor has got a going-concern comment, that is why the $39 million of the Goldman debt is now marked as current?

That, along with the $9.1 million pre-payment that is required by June 30. (multiple speakers)

Okay. So if you (multiple speakers). Go ahead.

They wanted to see that that got paid down because, of course, there is no assurance or guarantee from their standpoint of that being paid.

Okay. So if you have pre -- if you have successfully raised whatever amount equity you can raise and you can pay that [$9.1 million], then the remaining $30 million goes back into long term? Because this isn't due until May of, I think, 2019.

That is correct. That is the way I would view that.

Okay. And then, just so I am clear -- I have to admit these -- you have got to love the lawyers. They write these documents so confusing that you have to pay them to explain them to you. The $6 million -- the equivalent of $6 million of value that is in the warrants, if you raised, round numbers, $15.1 million, then the warrants disappear because you can now pay down. And that is what I want to understand. You would pay down $15 million of a debt, so I would see sitting at $0.4 million at the end of June if you succeeded in doing that. And the warrants disappear. Am I interpreting that correctly?

You are exactly correct. And, again, exactly that is at our discretion.

Okay. And then, it talks about pre-payment issues. So let's just say the market figures out this is absolutely the right thing to do. You manage the spreads. They are going to back you on this deal. Blah blah blah. And you could raise $30 million. Could you pay $30 million of debt down, or are they going to prevent you from paying any more than %15 million?

We can pay more than $15 million if we want to, but there will be a pre-payment penalty on anything over that $15 million.

And that is a make-whole on the interest issue, or how do I calculate that so I can figure out what the NPV of doing that is?

The way I am looking at it is, if we did that this year, it would be 4% on anything over $15 million that we would have to pay that penalty on.

Okay. So it is a 4% premium. Okay. That makes sense. And then, if you successfully do all of the things that you were talking about, will the auditor revise his opinion? Will you seek that, or are you just waiting until the next fiscal year? And I guess one of the questions is, what is the FTC going to say about having a qualified opinion in trying to get a registration statement through?

As far as I understand, there is no issue with getting a registration statement through based on the current K and what is in it. I don't want to speak for the auditors and say that they will adjust their opinion or adjust any of the numbers once we get the $9.1 million paid down. But it is my understanding that it would get adjusted.

Okay. And then, on Bango, how would -- how does Bango come through the income statement?

Strictly from a revenue and cost-of-goods standpoint. Since it is a tolling facility, we buy the inventory. We pay for the processing of that inventory. And then we sell the finished product. So it is strictly at a gross profit level.

Okay. So it there is no revenue impact, then. This is just a net number that it goes through gross profit.

No, there is a revenue number. So it is a revenue, cost of goods, and gross profit.

Okay. And the revs is just the finished goods sale.

Yes.

Okay. All right. And that is $23 million going in and about 65% of that coming out? Is that the way to think about it?

Yes. And that is a good point, Michael. Let me say, on a temporary note, just based on the activity there, we have brought that business down to a cash-flow-positive basis by reducing our input going into the facility and the output of our finished products. So we have made -- we have made some adjustments there just based on the current market conditions that are temporary until we can move that asset over to our side. And then we will ramp the volume back up there at that facility is our game plan.

Okay. So if it was $23 million, what should I use, just so I'm modeling correctly? You are running at $15 million, $18 million? What is the percentage of the total point you are referencing?

We are running today probably at about 7 million to 8 million gallons a year annualized.

Of production or input?

Input. Feed input.

Okay. And then, well, I guess I am confused about the G&A. You had a much stronger increase in the G&A than you did in the overall revenue even on a pro forma basis. So why can't you take more G&A out?

Well, that is going to be an item we are focused on, again, for the next six to 12 months is where are we operationally on expenses and SG&A on expenses. What additional synergies can we find within these various acquisitions?

We do think, Michael, there is more room there. And that is our focus for the rest of the year, as Chris said.

Okay. All right. So one last question for me, and then I will let somebody else. So what should I be assuming as a percent of revenue is DNA now that you have all of these pieces are owned?

To be safe, I would assume 12% to 14% right now.

Okay. So if it is 12% to 14%, I mean, if I did simple math, if I take the $220 million 16% gross margin (inaudible) $30 million, I have got sort of an operating profit of $3.2 million. And then I roll that back, the 12%, that is about $24 million. So you are telling me I am going to do about $27 million in EBITDA. Is that the way to think about it?

No. That is too high.

Well, $220 million times 12% is more than $24 million, but I am rounding.

Right.

So then help me think about what is my EBITDA on a $220 million revenue with 16% gross margin with $30 million of SG&A.

I mean, directionally, where I am estimating and seeing anywhere from $10 million to $13 million.

Okay. All right. That's a great help.

There are no other questions in the queue at this time. We would now like to turn the call back over to management for any closing comments.

All right. Well, thank you all very much. This is has been a very interesting fourth quarter and first quarter. I couldn't be more pleased with the way our team has come together. And there is no question when the pressure is on a business, you really see what you got. And our people have really stepped up and worked tirelessly together as a team.

We have accomplished a lot of things. We got through the credit agreement. We have established a new line of credit for the business. We have reduced our pay for oil into the refineries at a third-party level, at a street-collection level. We have got volume growth that is very strong. We have got asset that are, in my opinion, untapped as far as the potential for us to further leverage the asset base that we have. We are using our assets, but there is a lot of depth there that we plan to really unlock over the next 12 months.

We have got a long used motor oil market, so the supply for these refineries looks real good. So we anticipate these spreads to remain in our favor. We have improved our operations, as Dave said. Our refining ratability is improving. The quality and our compliance across the operations have improved. Our systems are coming together. So just the fact we integrated this Heartland business right behind the Omega business and had such a strong turnaround there speaks to the team and the way everybody has pulled together to manage what we currently have.

We're going to continue working on our costs. We are going to drive that down. We will see continued improvements related to our costs. We have got the opportunity to really de-lever the business. I know we have got a $9 million pay-down, but that is something that we -- as high as $15 million. We like that opportunity because it was our intent to acquire the Omega assets and Heartland assets and have the leverage there to really capture the opportunity and then de-lever the business. But we are able to do that without pre-payment penalties, those high-interest money. So we think that is a good return for our shareholders to do that.

Again, the Bango operation continues to improve. We are very pleased with where we stand. We're going to have hopefully some really good things to report related to the Bango operation. And we are very encouraged as we continue to move forward on the marine fuel opportunity.

So things are much improved over the fourth quarter. And we still have challenges as we work through these markets and continue to navigate the uncertainty of oil prices. And, as Chris said earlier, we have put some new measures in place to deal with further oil price downturns. So we feel like we have got some new tools in our toolbox now that we can rely on.

So as we move forward, we have got our focus on this business. And I am, again, relying and believing in a strong team to execute our strategy. They have really performed and done well. So I thank all our staff and our people for their work.

And thank everybody here on the call. Appreciate everybody dialing in. Again, if you have any further questions, feel free to reach out to Marlon Nurse with Porter, Labbe, and Rose at 212-564-4700. Thank you again for calling in.

This concludes today's teleconference. You may disconnect your lines at this time, and we think all of you for your participation.