Ben Cowart - Chairman and CEO Chris Carlson - Chief Financial Officer Dave Peel - Chief Operating Officer

Chad Bennett - Craig-Hallam Walter Liptak - Global Hunter Scott Levine - Imperial Capital Tom Bishop - BI Research Jeremy Hellman - Singular Research Michael Hoffman - Stifel

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]. And 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 & 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-looking statements during today’s call. Statements including words such as believe, anticipate, expect, and statements in the future tense are forward-looking statements. These statements involve known and unknown 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 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 end December 31, 2014 yesterday after the market closed. I’ll 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 is finished with the numbers, I’ll discuss further steps we are taking to manage through a difficult fourth quarter and how those steps will benefit to 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 and environmental services. Overall volumes of products sold, an important metric 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 2014. At this time, I’ll 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, 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 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 a higher relative to the price we realize 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 of 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 of 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 for Q4 2014 and $71 million in 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 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 & Marketing division produced revenue of roughly $14.7 million in the fourth quarter of 2014 versus $16.7 million in Q4 2013. For 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 of 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 value during the quarter compared to the finished product values we received 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 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 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 & 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 was $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 Grove 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’ll turn the call back over to Ben Cowart, our CEO.

Thank you, Chris. Before we move onto 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 we’ll 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’d 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’ve 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’re charging for these services. This was our first full quarter with the Marrero facility running at plant capacity, producing VTO [ph] for the Gulf refining market. At the same time, it was a last quarter for certain long-term legacy supply contracts that worked against us. While we continue purchases from those third-party suppliers, we’re 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 a range of refined products, for example our Group II base oil. The acquisition includes a 16 million gallon a year refinery and 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 tolling 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 sides 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 31st 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 Omega Bango refinery and asset that Vertex currently does not own. As we look at the year ahead, we believe the Company will return to profitability. This year 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’re 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-on questions or comments, please feel free to contact Porter, LeVay and Rose, our investor relations representative, Marlon Nurse, at area code 212 564 4700. Also I 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.vertexsynergy.com. 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’re unable to discuss any information or business plans which are not publically available. Thank you.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Thank you. And our first question comes from the line of Chad Bennett with Craig-Hallam. Please proceed with your question.

Hey. Good morning, guys.

Good morning, Chad.

So, 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’ll 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 pick it on. As far as going forward, we don’t typically look at or provide guidance on these acquisitions, but the revenue, we’re estimating and again it’s going to be subject to commodity pricing, about $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 pretty well. We have a very good staff there. The issue that the plant has had was the efficiency of the plant. Historically, it’s 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%. As you know, we’ve got a very, very strong and skilled, experienced operations team who -- and we’ve applied that resource to help with these things. So, that’s something that those guys didn’t have before. So, I think in the fact that we’ve got a very good staff there; they’re very skilled that will be well set to do that. We’ve 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’s 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’ve had such a quick turnaround with the Heartland business, again attributing the efforts of the team there and our senior guys and managing the feed cost into the plant; that’s been the biggest quick and fast change. Our collection business there when we took it over had $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’s been a very marked improvement on fee cost. So, we’re really 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, there 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?

So, I can certainly speak to the actuals 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 pay-for-oil. Now, we’re collecting fees on that. And so, we have a net negative $0.07 for the H&H business and a positive $0.04 to-date as of January at the Heartland business. So, overall volume weighted, we’re at a negative all-in number for the generated business that we’re collecting. So now, I won’t 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’s overall gross profit Ben, roughly?

That’s correct.

Okay. 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’s early in the game. I don’t think the transaction will close until the end of April to begin with and we’ve 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 agree to. So, we will continue to receive us barrels under the current pricing that we have in place. And I am confident either way that we’ll get the oil that we need for the refineries just based on the market conditions. The markets are along; 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 away.

Thank you. And our next question comes from the line of Walter Liptak with Global Hunter. Please proceed with your question.

Thanks, guys. 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 it sounds 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, go ahead Chris.

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

And then, 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 inventories?

Yes. Q1, we saw some of the same challenges in the fourth quarter, particularly in the month of January. We are 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.

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

I’ll speak to that in general. While we do have a turnaround, actually we’ve 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’re there and feel very comfortable with where the business is as we enter in the second quarter. But I would say third quarter will start to really tell the story of all the work that’s been done here.

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’s 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’s 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’re estimating SG&A to be around $30 million to $32 million for 2015. But as I mentioned, we’re seeing a $2 million improvement that’s going to be made or actually it’s already been made and you’re going to see it in ‘15 but our focus is going to be really on cost and SG&A for the next 6 months to 12 months.

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

Yes. So, just from a high level point and obviously you can look to the 8-K for some more detail points and description of the new amendment. But we got a way around the term loan installments for Q1 and Q2 which is obviously a very big beneficial item to our cash flow. As you know that we do have a prepayment requirement on the debt by June 30th of $9.1 million and we were able to get a waiver on the penalty and we 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 annualized basis. So again, as we’ve 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 three to four months to get it amended.

Thank you. And our next question comes from the line of Scott Levine with Imperial Capital. Please proceed with your question.

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? 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, VGO; base oil, and whether there is anything to be encouraged about there?

Yes. So, let’s start with the spread. Each stock 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’s just like industry issue. We’ve come through the low spot as far as supply when or and low generation in the market. So, we anticipate volumes to pick up through the year. So, we’re comfortable there. We also are seeing improved pricing on our finished products to the market index. So that the marine field sales that are incrementally coming into the business versus our VGO sales to the refining market, we’re enjoying a better sale price at the Marrero facility than the contracts -- the legacy contracts for sale of those products that Omega had. So, there is improvement on both sides that gave 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’ve got good customers on a ratable-basis that are taking those products. So, we don’t anticipate an erosion to our finished product pricing, subject to a continuation of the current crude oil prices that are in place today. Crude takes a big dip, then all the finished product pricing will follow at some point in time.

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.

So, because of the market conditions, Omega struggled meeting the closing requirements. We continue to operate under our tolling 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’re very positive about where we’re in that process. And we don’t feel like there is a big hand element that since urgency on our part to get in a hurry there since we’re already getting the benefit of production at that site. So, we will continue to move that forward with 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.

Thank you. Our next question comes from the line of Tom Bishop with BI Research. Please proceed with your question.

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

It’s 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’s 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?

I’ll 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’re probably not going to run at that full capacity just based on demand in that port for the product. So we’re probably running somewhere in the 35 million gallon range. The Marrero facility -- it’s peaked out at 62 million, we’re probably operating around. I think the fourth quarter we were right at 60 million roughly on 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 request. 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 around number is around 140 million gallons. I’ll let Dave speak a little bit more to that.

Just let me talk a little bit around the capacity and where we’re heading and what we’re doing. As I mentioned, throughout we’re very comfortable on the facilities and we’re very comfortable with the people. We’ve worked tirelessly over this past year to achieve the goals and objectives that we’ve set for these facilities. And I’ll summarize those goals and objectives very simply. We broke it down into four key components. We set safety and compliances that 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 if people don’t want it. So, we’re focused very hard on that. And as we mentioned before if you Heartland, the plant’s sold out. So I think we’re speaking to that, and also the moving to the marine market has gone well. So, the other area that we’re working on is ratability and we’ve 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 always make improvements. We make upgrades to try and increase the efficiency of the plants and improve their ratability. That has worked very, very well. We’ve had the longest run at Marrero since there we’ve had six months of predictable, very consistent production. So, that’s working out. We’re moving our focus as I mentioned before on to 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 this year is cutting the cost out of all of these operations. And again, we’ve got multiple programs in place. We’ve already started late last -- well, we’ve been at it a long time but we’ve really accelerated. So, the key goal for the Group this year is to cut the cost out of these operations.

So, just getting back to volume, we’ve 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 them.

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’s running the refinery. The tolling agreement allows for us to provide all the feedstock into the refinery and take all of finished products and co-products on the back side of refinery and sell those into the market and then we provide a tolling feedback 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 were some high hopes to that earlier, and it sounds like it is taking off to some degree. But 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 the 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 has 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 into next year. So with the improved pricing that we’re getting at that new sale and our VGO 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 asset.

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’s virgin diesel fuel or diesel light blend that the refineries produce. So, it’s a very commodity based product. So, our spreads, our improvement in that arena is in the $6 per barrel range. And we’re probably 20 plus percent integrated into that market over our VGO sale. But we still got a lot of room to continue growing our sales volume.

But you still have your traditional outlets for the…

Yes, absolutely.

Okay. Thank you.

Thank you. Our next question comes from the line of Jeremy Hellman with Singular Research. Please proceed with your question.

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.

Fully diluted share count would 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?

Again Jeremy, it’s 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 cost to collect the gallon used all and transport it to 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’ve moved from very high pay-for-oil at the street level; the industry is somewhat hung up at no pay no charge because that’s a real threshold. And we’ve tried to push into the negative cost arena where we’re 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 the services. And I think that will reset a hard reset at a generator level value of these services that the industries provide. So, we think that the oil price decline has been severe and difficult for the industry but it’s probably been the best thing that could have happened because the value expectation of the generator has 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.

I guess, as a follow-up to that then, if you expect that the industry wouldn’t return to its former structure where you’re 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 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 is really set by our industry not by the generator industry itself. They will pay us to take it and test the market and they’ll our money if we’re willing to give it them. And that’s 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’s the end of it from that standpoint. So, it’s really up to our industry as to how we manage our economics and the value that we put on the services that we’re 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 -- pick up as a commodity and we’re 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 $0.20 a gallon, that’s small money compared to liability concerns that bigger generators would be for pockets may have if the oil that’s picked up from their locations is not going to the best markets or 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]. And our next question comes from the line of Tom Bishop with BI Research. Please proceed with your question.

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’re 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.

Thank you. And our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question.

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’s 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’d like to understand what’s in the 30 million shares.

Now, a fair question, it’s just as of today; it does not include anything that we are discussing into the future; it does not include that warrant because it’s not definite that that warrant will be issued. So again, it’s just as of right now today.

Okay. And then your answer about the interest expense, if you are 10.5%, you’ve got $42 million of outstanding debt that would suggest that’s a bigger interest expense number. So, I’m assuming you assume you’re going to pay down at least $9 million as per Goldman’s requirement.

That is correct, you’re right.

And that’s how you get to the 3.5? Okay. And then when I think about the business model, if I take my best guess of what’s your average -- on page seven, you gave us some data. You say you’re at a nickel 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 ‘14, 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, adjust for the 40% difference in my selling price, I’m at kind of $190 million. Is that the right way to look at that?

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

Yes. But you gave me general industry numbers on a table back in about two-thirds related to the documents. So, if I am sort of saying directionally whether those are your numbers or not, if I take what I think is the pro forma $325 million using general industry average for ‘14, and you have given me a general industry average for start of ‘15, I am really looking at the direction. So I’m -- or asked another way, I mean you’re going to be down revenues year-over-year and is 190 too deep of a cut or where do you think this comes out?

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

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

That’s correct.

So are you expecting the gross profit profitable in 1Q?

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

But it’s more likely a single-digit, not a double-digit; we are in middle double-digits for the year, right?

That’s right, yes.

So, that would suggest that the fourth quarter’s 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’re going to be just below 20%, I don’t think it’s going over 20%.

Okay. I mean, it’s just the simple math. I think 16 times 4 that’s 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’s a pretty big number to be in the fourth quarter to do 16% for the year.

So the better way to look at, it will probably be second quarter of ‘15 through Q1 ‘16 of that 16% margin.

Try me on that again.

That Q1 ‘15 to the side and paying Q2 ‘15 through Q1 ‘16 for that 16% number.

Then with regards to the revised debt agreement, because the auditor has got a going concern comment, that’s why the $39 million of the Goldman debt is now marked as current?

That along with the $9.1 million prepayment that’s required by June 30th. 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 successfully raise whatever amount equity you can raise and you can pay that 9.1, then the remaining 30 million goes back into long-term because this isn’t due until May of I think ‘19?

That’s correct, that’s the way I view that.

Okay. And then, just so I am clear, I have to admit this, you’ve 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’s in the warrants, if you raised round numbers, 15.1 million, then the warrants disappear because you can now pay down. And that’s what I want to understand. You would pay down 15 million of a debt, so I’d see sitting at 24 million at the end of June, if you succeeded doing that, and the warrants disappear. Am I interpreting that correctly?

You’re exactly correct. And again, that’s in 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 prepayment penalty on anything over that $15 million.

And that’s 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 is that we did that this year; it would be 4% on anything over $15 billion that we’d have to pay that penalty on.

Okay. So it’s a 4% premium. Okay. That makes sense. And then, what is -- 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 till the next fiscal year? And I guess one of the questions is what the SEC 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’s 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 paid down. But it is my understanding that it would get adjusted.

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

Strictly from a revenue and cost of goods standpoint. Since it’s a tolling facility, rebinding inventory, repaying for the processing of that inventory and then we sale the finished product. So, it’s strictly at a gross profit level.

Okay. So, there is no revenue impact, then; this is just a net number that goes through gross profit?

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

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

Yes.

Okay. And that’s $23 million going in and about 65% of that coming out; is that the way to think about it?

Yes, it’s a good point Michael. Let me say on a temporary note just based on the activity there, we 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’ve made -- we’ve 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’ll ramp the volume back up there at that facility is our game plan.

Okay. So, if it’s 23 million, what should I use, just so I’m modeling correctly? You are running at 15, 18; what’s the percentage of the total point you are referencing?

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

Of production or input?

Input, feed input.

Okay. And then, 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’s going to be an item we’re focused on, and again for the next 6 months 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’s our focus for the rest of the year as Chris said.

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 G&A now that you have all of these pieces are owned?

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

Okay. So, if it’s 12% to 14% -- if I did simple math, if I take the $220 million 16% gross margin, use $30 million, I’ve got sort of an operating profit of $3.2 million and then I will additional back the 12%, so that’s 24 million. So, you are telling me I’m sort of going to do about $27 million in EBITDA; is that the way to think about it?

No, that’s 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’m estimating and saying anywhere from $10 million to $13 million.

Okay, alright. That’s a great help.

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

Well, thank you all very much. This has been a very interesting fourth quarter and first quarter. I couldn’t be more pleased with the way our team has come together. 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’ve accomplished a lot of things. We’ve got through the credit agreement. We’ve established a new line of credit for the business. We’ve reduced our pay-for-oil into the refineries at a third-party level, at a street collection level. We’ve got volume growth that’s very strong. We’ve got assets that are in my opinion untapped as far as the potential for us to further leverage the asset base that we have. We’re using our assets but there is a lot of depth there that we plan to really unlock over the next 12 months. We’ve got a long used motor oil market, so the supply for these refineries looks real good. So, we anticipate the spreads to remain in our favor. We’ve 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 have 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 cost; we’re going to drive that down; we’ll see continued improvements related to our cost. We’ve got the opportunity to really delever the business. I know we’ve got a $9 million pay-down but that’s 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 delever the business. We’re able to do that without prepayment penalties; the high interest money. So, we think that’s 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’ve put some new measures in place to deal with further oil price downturn. So, feel like we’ve got some new tools in our tool box now that we can allow. So, as we move forward, we’ve got our focus on this business. And I’m again relaying and believe in a strong team to execute our strategy. They’ve really performed and done well. So, I thank all our staff and our people for their work and thank everybody here on the call. I appreciate everybody dialing in. Again, if you have any further questions, feel free to reach out to Marlon Nurse with Porter, LeVay & Rose at 212-564-4700. Thank you again for calling in.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time and we thank all of you for your participation.