Ben Cowart - Chairman, President, CEO Chris Carlson - CFO, Secretary Dave Peel - COO

Chad Bennett - Craig-Hallum Scott Levine - Imperial Capital Walter Liptak - Global Hunter Securities Tom Bishop - BI Research Scott Redmond - Redmond Asset Management Jeremy Hellman - Singular Research Michael Hoffman - Stifel

Greetings, and welcome to the Vertex Energy 2015 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ben Cowart, Chairman and CEO. Thank you, sir. You may begin.

Thank you, operator. Good morning and welcome everyone. Joining me today on the call is 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 our 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, 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 our current expectations. I want to thank everyone for joining us today on Vertex Energy's First Quarter 2015 Earnings Call. We filed our 10-Q for the quarter ending March 31, 2015 yesterday after the market closed. I'll start with some highlights from the quarter, and then Chris Carlson, our CFO, will discuss the first quarter financial performance. When Chris is finished with the numbers, I'll provide further thoughts and discuss our plans for the remainder of 2015. Like the rest of the industry, our first quarter performance was affected by the steep decline in oil prices at the beginning of the quarter. This was a continuation of the difficult market condition that we anticipated as the year began. We are seeing some stabilization even a rally in oil prices, however, we may continue to be in low price climate for some time and we have adapted our operations to the new reality. We have undertaken operational cost reduction initiatives that have identified an additional $1.3 million of cost savings to the $2 million mentioned in our 2014 year-end conference call on April 1, 2015. Here are some highlights from our first quarter 2015; revenues for the first quarter versus first quarter 2014 was down 20% to $37.6 million. Gross margin during the first quarter was less than 1% compared to 10.8% in the first quarter 2014. In the first quarter, we continued to lower our pay-for-oil at a street collection level reducing it by 89% year-over-year. In addition, we have moved our service fee model for the collections of used motor oil and environmental services. Overall, volumes of product sold increased 32% for the first quarter 2015 versus first quarter 2014, this is an important metrics of our business because does illustrate our reach into the market. Our street collections volume increased 67% year-over-year and this reflects the addition of the Heartland collection operations which is now part of our collection group subsequent to the quarter closing, we have taken on a new lease on the Fallon, Nevada facility with a purchase option from the original land owner after the mega lease was terminated. At this time, I will turn the call over to Chris Carlson, our CFO, who will go through our first quarter 2015 financial results. Chris?

Thank you, Ben. As usual all of Vertex Energy's financial numbers are prepared unless noted in accordance with generally accepted accounting principles. Before I review our highlights from the first quarter 2015, I want to address two non-cash line items that affected the quarter. For tax reporting purposes, we have NOLs of approximately $36 million as of March 31, 2015 that are available to reduce future taxable income. In determining the carrying value of our net deferred tax asset, the company considered all negative and positive evidence. The company has incurred a cumulative pre-tax loss of $9.8 million over a three-year period ended March 31, 2015. As a result, we determined at a full valuation allowance for our deferred tax assets at March 31, 2015 of $5.3 million was appropriate. Second, for the quarter there was $3.7 million of current notes receivable balance which represents short-term loans that carrying interest rate of 9.5% per annum. Based on management's assessment, the company recognized an allowance of $2.7 million during the first quarter 2015. The note is collateralized by insurance proceeds expected to be collected in 2015. We were impacted by $8 million as one-time items or $0.29 from the first quarter 2015. For the quarter ended March 31, 2015, we reported consolidated revenue of $37.6 million compared to $47.3 million in the first quarter of 2014, a decline of 20%. In our Black Oil segment which includes our Marrero, TCEP and Heartland's business units' revenue was $24.9 million for first quarter of 2015 as compared to $23.6 million in the first quarter of 2014, a 6% increase. Our volumes also increased 71% year-over-year. The Marrero facility which produces vacuum gas oil or VGO, generated $10.6 million in revenue for the first quarter 2015. Marrero was part of the first closing of the Omega acquisition and has been part of our business since May of 2014. TCEP which makes low sulfur cutter stock generated $2.3 million in revenue for the first quarter 2015 versus $19.7 million in first quarter 2014. The decline was due to a strategic decision we made to shift feed volumes from the TCEP facility to the Marrero facility allowing us to reduce costs and reset pricing. This decision resulted in a 76% decline in volume at TCEP as compared to the same period a year ago. The Heartland facility which we purchased in the fourth quarter 2014 and makes a Group II Base Oil had revenue of $5 million, this is a first full quarter we have operated this facility. The Refining & Marketing division produced revenue of $8.2 million in the first quarter of 2015 versus $19.8 million in the first quarter of 2014. Production volume decreased 21% during the quarter. For the first quarter 2015, Vertex recovery generated $4.5 million in revenue an increase of 14% from approximately $4 million a year ago. Gross profit in the first quarter of 2015 was $78,740 compared to $5.1 million during the same period last year, 98% decline. This is a result of the decline in our inventory values and the finished product values during the quarter. Our per barrel margin during the quarter was down 97% which again was the result of the decline in commodity prices. Gross profit for the Black Oil division was negative $1.8 million during Q1 2015 down from Q1 2014 of $2.5 million. Marrero had a gross profit loss of $896,000 for Q1 2015. As mentioned, we took control of plant in the second quarter 2014 as part of the first closing of the acquisition from Omega. TCEP had a gross profit loss of $322,000 in Q1 2015 compared to gross profit of approximately $2.6 million a year ago. Heartland produced gross profit loss of $16,000 in Q1. Since taking total control of plant in December, we have seen continued improvement in production. Refining & Marketing gross profit declined by 39% to $961,000 in the first quarter compared to $1.6 million a year ago. Vertex Recovery produced gross profit of $942,000 during the first quarter of 2015 compared to a gross profit of $1.1 million a year ago. Selling, general and administrative expenses were $7.4 million in the first quarter of 2015 relative to $4.2 million a year ago. The increases were attributed to acquisitions, additional facilities and more employees. We took additional steps in the first quarter of 2015 to reduce SG&A. As we move forward to our goal of lowering by approximately $2 million annually. And we booked roughly $400,000 of that in the first quarter of 2015. Additionally, we have identified an extra $1.3 million of cost savings from our operations which will lower our annual expenditures by $3.3 million in total. We reported a net loss of $16.9 million or a loss of $0.60 per fully diluted share in the first quarter of 2015. This compared to net income of $881,146 or $0.04 per fully diluted share in the first quarter of 2014. As mentioned earlier, net loss for the first quarter includes one-time items totaling $8 million or $0.29. Without the one-time items, our net loss for the first quarter was $8.9 million or $0.31. Now, I will turn the call back over to Ben Cowart, our CEO.

Thank you, Chris. Before we move on the question-and-answer portion of this call, I want to make some comments about our business and our outlook for the rest of the year. We remained committed to returning the business to profitability in 2015. Looking ahead, here are some things worthy of your attention; the service fee model for collection of used oil and environmental services that we adopted in January 2015 is benefiting the company on controlling our cost of oil to the refineries. We experienced a 76% decrease in the volume of our TCEP refined product in the first quarter 2015 as compared to the first quarter of 2014. This decrease was a result of the strategic decision we made not to produce our TCEP finished product during January and February and to ship the used motor oil, feed stock to our Marrero facility. We have entered into a new leasing agreement with the original land owner after the Omega lease was terminated. We were unable to close on the second closing with – of the Fallon, Nevada asset from Omega because Omega was incapable of fulfilling its obligations under the purchase agreement. In addition we have also secured to equipment releases related to the equipment used at the plant pursuant to the terms of the leases no rental payments are due for calendar year 2015 and rental payments for 2016 are payable by Vertex in cash or stock. Lease agreements also provide Vertex the right to acquire the plant and equipment directly by paying certain pre-negotiated purchase prices. We will continue to look at synergistic cost savings from the multiple acquisitions we have completed. We have identified $3.3 million in annualized operational cost savings including SG&A. We reduced our SG&A in the first quarter 2015 by an additional $400,000 from the fourth quarter 2014. The last nine months has been a difficult time in every segment of the oil business and Vertex Energy has weathered the storm. Our spreads are good and have definitely improved. We have altered our business to suite the low price climate and have taken steps to reduce operational cost. We have come through this trying time in large part because of our management team which is experienced and knowledgeable about our industry. They have done an extraordinary job in this most adverse business climate that we've seen in years. It's because of their dedication, their timely and prudent actions the Vertex Energy's prospects are bright and the business is poised to thrive. We are ready for questions at this point, but I want to let 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 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 until June 30, 2015. Details on how to access the replay can be found in our recent press releases and on the Investor Relations section of our Web site at www.vertexsynergy.com. Thank you.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Chad Bennett with Craig-Hallum. Please go ahead with your question.

Hey, good morning, guys.

Hey, good morning, Chad.

So can you give us – kind of give us an update on where we are today in terms of pricing, obviously oil prices have went up a bit since the first quarter I'd say on a blended basis and kind of where we are with pricing and spreads? And then also the shift from the Houston facility or your TCEP plant to Marrero is that just a function of kind of end market demand for your TCEP products or to assume it's a big part of it? And do we expect that to change in this quarter and going forward? And the last one from me is just, can you give us an update on the collection side of how much of your collection basis is internally collected at this point and how much do you get from third-party aggregators? And then I'll ask more when you're done with those.

Okay. Let me see if I can remember all those, Chad. First of all the, I have to speak about the current spreads just in general, it is dynamic as prices are dynamic in the market, oil prices are up. We have seen some benefit in our purchase discounts as well as a rattling index on our inventories as we go into the second quarter. So that's a positive thing. Second is the – I think the question about TCEP and the production volume, it's important now to understand the value that TCEP provides us in mitigating our cost of feed stock. So what we have done in the first quarter when the market was having to reset and we had to reset our spreads to these low oil prices. We were able to use our feed stock in Houston to feed our operation in Marrero with lower feed cost and allow us to continue lowering of feed cost on the oil that we were purchasing in Marrero as well. TCEP has a high – or a higher variable cost and a low carry cost, which is different than the Marrero facility which is mainly fixed costs and minimum variable cost. So we were able to reposition barrels and reset our spreads across the Gulf. So today, to answer your question about TCEP going forward, we are running at our target production rates for TCEP as of the second quarter. And we have got our feed stock that we need at the Marrero facility as we move ahead. So there was a lot of maneuvering throughout the industry in order to reset the value of used oil and I think our team done a really good job in the first quarter to do that. We won't really enjoy the benefit of that pricing until we get into the second quarter. As far as our collection business, the collection business is about 20 plus million gallons across the two business units. And we significantly lowered that cost to average charge across the business units and we figured that just the way we figured our pay-for-oil prior to the collection in the market where we – we are given oil filter service away, we are given hands free disposal service away and we were paying for oil. So now we are charging for those ancillary environmental services. We are charging picking up for free and maybe paying a little bit for some special generators. But that average price for us is a negative number across the 20 million gallons for the first quarter. So we are very really pleased with our team there as they work really hard to drag these costs down.

Yes. No, I don't think, I think you covered everything. And then Ben, how much is the average price come down on the third-party gallons?

Well, remember, third-party is purchased against an index at the gate of each refinery and so it's hard to quantify that in a cent per gallon. It's because the index is moving up and down.

Okay. And then last one for me, maybe for Chris; Chris the $2.6 million provision for doubtful accounts what was that for or related to?

That was related to the loan that we made to Omega in June of last year, it was one of the closing – part of the closing of the first Omega close. So we have written that down temporarily while we continue to look at the likelihood of getting that back.

Okay. All right. Thanks guys.

All right. Thanks Chad.

Thank you. Our next question comes from the line of Scott Levine with Imperial Capital. Please go ahead with your question.

Hey, good morning guys.

Hey, Scott. Good morning.

See, you guys gave some indication of how you expected gross margins to improve throughout the balance of this year obviously expectation of a weak first quarter and some timing for lag for this recovery in margins associated with spread. But, I guess, I would ask you whether your outlook has changed at all either to the positive or the negative or from a timing perspective based on what you have seen transpire since your last earnings call?

Good question. Thank you. So we look at just 2015 including Q1, we are expecting the annualized margin to be in a range of 8% to 10%, as we go beyond and look into next year we are expecting the margins to be back in the normalized territory as we have discussed in the 12% to 16% range. So obviously, Q1 is going to drag down 2015 numbers.

We expect Q2 to kind of be a stepping stone to a more dramatic improvement in the back half of the year, I mean, 2Q I know is kind of still a bit of transition. But, is this kind of somewhere between where you would expect to be in Q3 and then more of a leveling off there after, just looking for a little bit more color on the upcoming quarter?

Yes. There is definitely going to be slower improvement second quarter then further improvement third quarter and then into the fourth quarter.

Got it. And then if you could help out us as well, thanks Chris. Did the change from the tolling arrangement on Bango to the leased arrangement on Bango, I know there is no rental payments required this year. But, help us understand of your thought process there, whether there is any economic impact and what that would be with regard to Bango in bigger picture thoughts with regard to your western region strategy?

Yes. So Scott we have taken one-step back and just kind of wrapping things up with Omega putting that behind us. So obviously, there was a lot of effort in the first quarter to bring this asset into the business and kind of put it to bid. So part of our – I would say additional losses on EBITDA for the first quarter was related to the things we had to do to keep that asset moving into our hand. So we had to step in where they actually could cover certain cost, so we got that behind us. As we look forward, we got some interesting opportunities with the facility and we are going to be able to communicate better what they look like as we finalize some of those – those opportunities and chart or course with the asset. So I think it's just hardly today to convey over the call just to what level the asset will be contributing in the short-term to the business. We are very positive about what we have accomplished and what that will look like for us going forward.

Thanks. To be clear though, you said, could you quantify these impacts to your adjusted EBITDA in the quarter associated with the actions taken at Bango, is that not possible?

No, I think so. It's about $1 million of cost that we incurred during the first quarter in order to get this transfer of lease and everything over to us.

Got it. Great. Thank you. And I guess the last question I have is with regards to the SG&A, the $1.3 million, so to be clear, is that $1.3 million an additional cost take out, is that all on the SG&A line, is that over and above the $30 million to $32 million you effectively had guided for previously for fiscal 2015 SG&A or to some of that OpEx?

Some of that is OpEx. So it's going to be found in both SG&A and operational cost.

Maybe $30 million is kind of a decent number to think about the low-end of the prior range for SG&A for 2015?

Yes.

Got it. Great. Thanks.

Thank you. Our next question comes from the line of Walter Liptak with Global Hunter Securities. Please go ahead with your question.

Hey, good morning, guys. So congratulations on getting through this rocky time in the oil markets and I guess my – just a follow-up on that gross margin question, Chris thanks for that guidance, doesn't hear it perfectly, did you say 8% to 10% gross margin for the full year 2015, is that the number you are thinking about?

Yes. That's correct.

Okay. So then it sounds like there is going to be this ramp that happens a little bit lower in the second quarter, can you get to that 12% to 15% range by the fourth quarter, you think your spreads are going to be under control enough?

Yes. We believe by the second quarter we will be in that 12% to 14%, 15% range.

Okay. All right. That sounds good. And I wonder if you can help me with some of the math, you've already kind of thrown out a couple of data points like with the TCEP plan, it sounds like this quarter there was about $3 million negative delta year-over-year. Is the TCEP spread good enough for you can be back to having a gross profit in that – are you having gross profit or be in mid single digit or something grows in TCEP?

Yes. Going forward, we're seeing decent spreads or good spread in that TCEP.

Okay. So it will be profitable. And then that $1 million cost that Ben just talked about, that charges was one-time to transfer the property to a lease, it sounds like so that does not reoccur in the second quarter or any time this year?

That's correct.

Is that right?

Yes.

Okay. So that's at least $4 million or something close to $4 million of gross profit that should come back into the second quarter, is that math okay?

Yes, I think that's reasonable.

Yes, Walter, to add to that I think its important to note the – we had some losses incurred with the mutual integration of the Heartland asset for the first quarter totaled about $1.6 million as we took the business over in December. We've had continuous improvement at Heartland as the much carried even in the first quarter we – so we're very pleased with the progress we're making there. But there was I guess take over of just – adjustments in getting our hands around all the moving pieces there, fixing lots of problems and just incrementally improving the output every single month. We're making some capital improvements at the moment and should give us the improved ratability that we're looking to accomplish. So things are on track and progressing, but it is important to note in the first quarter there was $1.6 million EBITDA loss there as we were bringing the business under control and turning that around.

Okay, great. Yes. Thanks for that color. Yes. I was wondering about the street collection too up 67% at Heartland, it's a pretty big number – what are the spreads looking like at Heartland? Are those under control now?

Let me clarify that for you. The Heartland collection business being added to our legacy collection business in Texas gave us the 67% volume increase over the collection.

Yes, I got that. Yes, I got that.

Yes. I would say that when we took over the collection operations in December our pay-for-oil at a street level was around $0.89 a gallon. Today, I guess would probably in the first quarter at a sub-zero number all-in. I think our – it may have been a slight positive. So we've really worked hard with our guys there and made a lot of change on pay-for-oil. So the business is definitely heading in the right direction, very pleased with the Heartland asset.

Okay. Good. Yes, it sounds like, yes, it's a new business and you guys are getting used to managing it. It sounds like you got your spread under control there. Just kind of generally with Heartland spread and the pay-for-oil, are prices still coming, is there still – when to chop to get the PFO number to where – you are collecting a fee for it, or is, are we there already here in May?

Yes. I'll say we're getting close. The Heartland business has not called up with our Texas economics. So there is still work to do there, but, significant headway just in the first quarter. So getting a new business – getting familiar with all your accounts, your customers, all your employees and making the turn like they did was a lot of work. So I think they exceeded my personal expectations on the progress they made and things they are continuing to bring those pay-for-oil costs further down. So I think there is more room there to bring that cost in line.

Okay, great. And then if I can just ask one last one on – and just kind of going to the topic of the Goldman situation and the covenants and just wonder where we are with that, any strategy on that going forward?

Yes. I think the relationship with Goldman is good. There has been a lot of productive conversations that we have had where – they are looking at the forward picture of the business. And I really can't say we are going to get anything different done at the moment. But, I think that there is a possibility that there could be some moment on their part as we go forward. But, we are prepared to meet their requirements on June 30, if that's what we have to do.

Okay, great. Good luck with that. Thank you.

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

Hi, good morning.

Good morning, Tom.

I want to ask about the – I think in the last conference call you mentioned that you hope to be back to profitability in Q2 and beyond. And I was wondering it sounds like you might be backing off that a little bit, but I just wanted to ask where you stand with that?

Yes. That's definitely still our target. And again, as Ben mentioned oil prices have seen to stabilize so that obviously helps in the spreads in the business are seeming to realign with our expectation. So that's the direction that we are looking as to be positive in Q2.

And that's not the line we see the bottom line, right?

Correct.

To be clear –

Yes.

Okay, great. Now I think we find it helpful to run through the capacity at each place in particular the current run rate because there has been a lot of moment and we made some improvement, so I was wondering if you could run through, I mean it sounds like, you just kind of shut down for a couple of quarters or a couple of months there, as far as the last quarter goes, but I'm looking now to the capacity and current run rate of production?

Yes. So that is correct, Tom, too much where we took the unit down, the run rate today is that a target that we set. Let's say, our – we got our turnaround at Marrero and will change gears a little bit. The turnaround at Marrero got done at the end of the first quarter and the first part of the second quarter. It's running well. We with the – I guess the run way on Marrero we should be able to stay at full production subject to our ability to acquire the feedstock. We are sorting out some of our challenges on working capital at the moment. But, the plant is really doing well, the team everything is running real smooth there at the Marrero facility. TCEP again going back to –

Sorry. What is the capacity there then?

It's about 4200 barrels a day, Chris?

Yes.

Roughly. And –

And the general, that was for maintenance or something?

Yes. We had a turnaround – at the end of the first quarter and the beginning of the second quarter, so we have got that out of the way, that's a good point. I'm glad that you brought that out that's done every 4.5, 5 months there at that facility. So we just – we are claiming good there at Marrero.

We just – it has got a – drag to feed in, we got the spreads there, so all is good from a operating and production standpoint.

But you are concerned about having enough oil, is it not?

We have had a challenge on our working capital for the business, so that's being corrected as we speak. That has limited our ability to go out and buy large quantities of feedstock for that refinery. So once that is taken care-off here real soon then we don't anticipate anything slow when it's down there at Marrero. We are ready and – clean and ready to. So let me just quantify that that current adjustment is about 1200 barrels a day, so it's not anything major. So we [bring] [ph] the plant back to meet our working capital capacity and it's the difference between 4200 barrels a day and 3000 barrels a day at Marrero.

Okay. That covers that. So and Marrero then it's operating at about 3000 now?

Yes. And keep in mind, our target capacity for the TCEP operation and Houston as well. So when the spreads are really good at TCEP, so we have chosen to run it at our targets and not take feedstock and try to move it over to Marrero. So –

What is that target? I mean is the target mean capacity or --?

No. We are running it about 65,000 barrels a month there in Houston. We can take Houston up. We got room there. And we have got some room at Marrero.

Beyond this 6,500 and the 4,200 or beyond the 3,000 at Marrero?

Well, we can go up from 3,000 to 4,200 at Marrero. And we can go from 6,500 to 7,500 at Houston. So we definitely --

So that's that one. And then Heartland?

Yes. Heartland I said full throttle other than the maintenance turnaround that we are doing at the moment. And so we are making some capital improvements on Heartland refinery to improve our ratability. But it is at full throttle, I guess at about 1,400 barrels a day.

1,200.

1,200 barrels a day, and all our product is sold, we got the feed. We got the spreads there. So –

And then lastly, Bango, well, I think that's last, maybe I missed one –

We have been operating at around – I will change it to gallons, I just don't have the conversion Chris, but it's about 800,000 gallons a month there and so that – we had Bango back and we may continue to do that at least in the next month or so. I think we are expecting maybe 500,000 to 600,000 gallons of sales for this month of finished product out of the Bango facility. So we have been – we have just been on a low level of operations until we reset the business there.

Okay. And which you hope to do by when?

Yes. I think we are going to – I would just assume Bango volume been out of the picture other than a minimal level of production for the second quarter. And then we will have all our ducts in a row and I will take agreements and supply agreements and throughput agreements in place as we reset the business going into the third and fourth quarter.

Okay. I thought you said it was running at 500,000, 600,000 gallons?

Yes. We anticipate bringing the unit down for some repairs and maintenance and then resetting our contracts around the refinery, input and output and then restart the plant with better game plan in place.

When is that restart scheduled?

We are operating today. Say it again?

When that's restart scheduled?

I would say third quarter is our target. The second quarter – the rest of the second quarter will probably keep the Bango operation balance, we make the improvements and reset the business to restart it.

Okay. All right. I have taken enough. Thank you very much.

No problem. Good questions. Thank you.

Thank you. Our next question comes from the line of Scott Redmond with Redmond Asset Management. Please go ahead with your question.

Hey, guys. Good morning.

Good morning, Scott.

Good morning.

I have a general kind of industry's perspective question that I guess could probably never be verified. But, just kind of taking a temperature of the industry, and so if I were to – if somebody were to throw out a gas that two out of every ten businesses in your industry or industries, they don't survive this tough time in the same form that they were – they entered this time either they shut down – they reorganize in different ways. And if somebody were to guess that two out of ten businesses in your industries don't survive this trying time in the same form, would you all think that was too high, too low or about right?

I think it's conservative. We have already seen a lot of consolidation take place over this downturn. So there has been a lot of struggling companies in our space and I would say two out of ten is probably ahead of that target as industry today.

All right. Thank you very much.

Yes. Thank you.

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

Hi, good morning, guys.

Good morning, Jeremy.

I wanted to get my arms better around the pricing mechanism on the collections, I understand that we are still talking about planning, but is it said such that multi-unit operators, your jiffy good types have to do in multiple service stations basically set a price and then you guys and your competitors in the market then can chose to come in and accept that price or not accept the price and not collect there or is that the pricing done differently?

Yes. It's vice versa. So we as an industry go to the generator and we basically offer our services either at a charge to the generator or we will offer to pay the generator for the privilege to service their location. So it depends on the value of the haul that you are collecting will determine what we at the industry would purpose to that generator.

Okay. And so what proportion, you can need to frame it by percentage of volume or maybe percentage of locations, what proportion are still getting paid for their used oil either by you guys or the industry in general?

Yes. I would say across the country on average there is probably still a pay-for-oil average in the industry. So I will say the majority of the oil it's still be in – purchased especially with increase in oil prices. I will say that industry is still moving to lower that pay-for-oil through the consolidation that's taken place at the collection level. And more disciplined operators as they are kind of holding the generator to much lower expectations for the value of the oil. If oil prices continue to go up then you may see pay-for-oil start to pick back up, if oil prices stay today I think pay-for-oil could continue the decline a little bit would be my thought.

Okay. Thanks for that. That's a good perspective for me. I appreciate it.

No problem.

Thank you. Our next question comes from the line of Michael Hoffman with Stifel. Please go ahead with your question.

Hi, Ben, Chris.

Hey, Michael.

I realized you talked about this in the beginning, I just want to make sure I got my hands around it correctly, so I'm thinking about this in the context of each stock cost deliver to the plant, processing cost and then where your selling prices are and how that ends up sort of getting to spreads. If we looked at it across the – sort of a three major buckets, there is the cutter and two set Marrero, VGO and then Heartland, Bango you are basically selling Group II. Can we walk through each of those into big chunks, how do you feel about that delivered to the plant [reach] [ph] that cost today in light of all the changes that have been going on in the marketplace and the up and down – slightly up and then slightly down again oil price. Where are we in feedstock cost delivered to the plant and in some cases you are paying for oil, other cases you are trying to go forward, get all of that, but, once you deliver the plant, what's that total number look like relatively to your expectations and relative to what it can be in the current environment as crude stabilizes around where we are?

Yes. Again, Michael, the index changes everyday, so most of the oil that comes to the refinery comes in as a discount to a fixed oil index. So trying to nail down a number is a daily effort that there is a consistency in our discount to that index and the sale price premium that we get for the finished product. Our operating costs I think have improved across the board for what's going on in fact the gate as far as run the refineries. And so we are pleased with those numbers. An example that Marrero would be prior to the oil prices coming off like they have – we were buying oil at 10% discount to the 3% fixed oil posting. Today we are probably at 25% discount to that same 3% posting. We may have improved our sale price incrementally over what we are getting for the VGO product is produced. If you go to Houston, you would be at 18% discount, 19% discount roughly in Houston and today you are around 35% discount. So those are big improvements and as the market and the index pricing goes up if we think oil prices will continue to improve incrementally because you are buying at a percentage discount today, you will pick up some dragging margin as the market start to move forward. Does that answer the question?

Yes. I think so – and just so its clear that price you say 35% discount to number 6 that's a delivered price to the plant?

Yes. That's correct.

Okay. And you would say that your process starts inside the gate or have you found that the bottom of – the relative big gap bottom and there is some marginal improvement or where are we in that –

Let me just say I guess you never waste a good crisis in our business. And we have like this additional $1.3 million of cost savings. We have really went through the business and inside these plants, we found any kind of sloppiness or opportunities to improve our margins in our operating costs, we found some opportunities there. So our cost per barrel at TCEP today is lower probably than it's ever been to convert a gallon. I think we are seeing the same thing at Marrero, our cost are coming down. And we expect to see that same type of performance at the Heartland facility. And Dave Peel here on the line with us, why don't you speak to what you see as far as operating cost for these two plants?

Okay. I will be pleased to do that. I think the other thing apart from what Ben had said about the cost trend which was a great job especially at TCEP; we are looking at the same thing now in Columbus. But it's lucky that improving the ratability that's the other thing that drags the unit price stand. So if you look at Columbus for instance, from January to February to March to April, we have increased production every single month at – in that plant. So as Ben said, right now we are operating at full capacity at that plant. It's also fully sold that. So that's all good stuff. As we are doing the quarter two turnaround there, deploying some more capital and we expect that is – further improve the ratability of the plant, so I think that place, I think going definitely in the right direction with the low free customer in the great job we have done. We have got production on a very positive trend and plant completely sold out. Looking at Marrero that is running very, very well now. We did the last deployment of capital on this last turnaround and as we came out of the turnaround the plant is running very, very well. Looking forward, we are still progressing on the deployment capacity increase to take that unit from 4,500 of barrels up to 6,000, so that's progressing nicely. All the capital to allow us to go certainly up to 6,200 all that capital is already deployed and in place. So once we are successful and given the [4000] [ph] that allows us to increase production in that too. So I think all of those things a very positive.

And Michael that all speaks to your overall operating cost per gallon. So we have taken cost out. But we have also improving the ratability which gives us more barrels through the unit than originally anticipated.

Okay. And then with regards to the idea of being profitable in 2Q, if we walk through by month, I'm presuming January was the worst; February was pretty bad; March gets better, maybe it was positive and then April is positive, how do I think about sort of the trend?

I would actually say February was a pretty good month. We had to pick up a lot these expenses out at Nevada in March. We had some production – Heartland due to redundancy and some of these capital improvements that we needed to make. So we felt that in March as well. But those were more one time type of issues. So but, overall, February and March just from a spread standpoint was good. I think it was more ratability and some of these have abnormal expenses that hit us in March that hurt our overall quarter. January was terrible. That's probably the worst out of the whole decline in oil prices. And a part of that and I'm glad we picked up on this question is that, the fact that we inherited some very expensive oil price contracts from Omega that did not terminate until December the 31st. But those contracts would price the oil in the month prior, so we were buying oil at the end of December based on November's index pricing with very small discounts to those index. And actually processing that and selling it at the end of January. So it was the worst case scenario as far as spreads go. That's behind us. All of those contracts are overly within and been reset as we go forward.

Okay. And then Chris, when is the business swing back to free cash positive?

It's going to be the latter part of Q2 and then rolling into Q3.

Okay. So is that – that's just a function of a spread issue or is that also a function of managing your working capital better?

It's a little bit of both. Obviously, the spread improvement is going to help and then working capital management as we get into Q2 and Q3 is going to improve particularly with the revolver as we are going to have more access to inventory and receivables on our borrowing base.

All right. And then last one for me, it's been a long call. You have a self-registration in place, changed your auditor, you did have a history of previous figure review, but where do you think this review is, so you are going to have to go through a full review or can it be abbreviated?

I'm assuming and I believe it's going to be a limited review. But there will be a review nonetheless.

So it clears the 1, June or this could be the middle June before it clears?

I think it will clear probably in middle of June.

That puts you – that's a really tight window to use public markets to raise capital. So how do we solve the Goldman issue at the end of June?

Well, we run parallel paths Michael, we have got our self-registration obviously as one of our tools and we schedule and plan around that. We also can look at private funding into the business and possible refinance as well.

Okay. Thank you.

Thank you. Our next question comes from the line of [indiscernible]. Please go ahead with your question.

Hey, guys. I know it's kind of been a headache just fluctuation in oil prices and how it reflects on the business, so just a quick question, going forward what kind of as your margins start improving what kind of hedging policy we may enact or if you all or even interested in doing that?

Dan, good question. Margins have improved obviously with the new purchase price on feedstock that's the key to managing the spread and low oil prices, you just got to back your feet cost up. Looking forward, I'm glad you have asked that question because we have done a lot of work in the first quarter and to-date on hedging strategy. And we have got several trading partners that we are in conversation with that are interested in bringing a full-on hedge program to the business that would protect at least hedge this down side risk that really hurt us over the last nine months. So that's something that we spent a lot of time on and we hope to build – bring to the market some interesting solutions to the concern going forward.

All right. And then one last question is, just a quick accounting question, I think everybody can expect it for Q1 being – how come, or I wonder you all going to write down some of your old intangibles or goodwill's probably would have been a fair quarter in order to do that. So it's a quick question just kind of talking about cleaning up the balance sheet a little bit?

That's a great question. We obviously reviewed that at 12/31 based on the markets and oil prices and where things were. We passed on it if you will. And we are definitely going to continue to review that every quarter just in the normal course of business.

All right. That's all I have. Thanks guys.

Thank you, Dan.

Thank you.

Thank you. Our next question comes from the line of [Shaun Marconi] [ph], a Private Investor. Please go ahead with your question.

Hey, guys.

Good morning.

Hey, Shaun.

Hey, good morning. I got a question regarding the [Marrero] [ph] growth asset, is there any opportunities developing that asset, with any potential strategic partners moving forward?

Hey, very good question. Obviously, we have looked at all our assets within the organization and what was producing and what was not producing. And have been evaluating – it's their liquidity in these assets that we could actually pay all our debt off or pay it down significantly. And the Marrero growth asset certainly is at the top of that list. We have spend a lot of time out there this first quarter myself personally really understanding the opportunities and entertaining several interested parties on the site, during the site. And we believe there is significant opportunity around the Marrero growth asset to bring a partner in or potentially leverage that asset into cash and pay that down. And I think that's our first preference. I think joint venture funded development for that site makes more sense to us. So we have been very aggressive out there in the last two or three months to bring that asset to the surface and start doing something with it.

Okay, perfect. And then no one on this call mentioned anything about Bakersfield which is essentially the asset, Bakersfield, California that produces finished lubricants and now that Bango is undergoing this operation, you guys have plan to get that asset up and running or is it one of those things, we just want to focus on the assets you have produced cash and focus on the core business right now?

Yes. I think we have to focus on the core business today, make sure that we have everything that we are currently committed to working and working well. And then, now that we have the Bango refinery in the fold, the Bakersfield asset makes – it's a perfect complement to Bango. So we are looking at both of those assets as a payer. That the finished lubricant business as tremendous upside on the long-term and we would love the prospect of produce and finish lubricants over intermediate base oil. I think that that's going to take some time, so we are not going to step into something where we have got [entry calls] [ph] in cash burn in order to develop the market and get our product in the market. I think we have got the very protected today of our cash flow situation. And as the market provides us capital then we have that asset ready to deploy. That was a big driver for us as we went into these oil price downturn and so it has changed our priorities a little bit. But, the asset is in hand and more certain today with the Bango asset in our hand. So it provides us some real growth long-term. But, in the intermediate timeframe until we refocus our capital and reset our spreads as we are doing and get our core business healthy and solid. We are not going to start bleeding cash to expand that Bakersfield operation.

All right. Thanks a lot guys. And I will talk to you guys soon.

Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question is a follow-up from the line of Tom Bishop with BI Research. Please go ahead with your follow-up.

Am I hearing that the offering in June 30 is possibly up for negotiation that mean not a certainty, or did I get the wrong inference?

Tom that's a fair question and all I can say today is that Goldman they understand our numbers. They know kind of where we are operating at. And we have had some very cooperative and positive conversations with them. I really can't say one way or the other rather anything get done different than what we are currently committed to. But, I'm encouraged by the dialog. And so hopefully we can move that discussion further down the road and bring some information to the market.

Okay. And also you mentioned one way to perceive this private funding, you mean just going direct to one or two, three big players and having them take the offering if its necessary that's what you meant private?

Yes. That's one private and then if we can't use our self-registration then obviously a pipe tight transaction will be another option towards the end of the timeline, if we have to do that.

To find that, have you tried tight transaction, can you share?

Say that one more time.

To find that sort of transaction in your case what that might be -- pipe?

It would be investment bank bled transaction. And so that – we did a pipe transaction in June of last year. So --

Okay. Thank you.

Okay.

Thank you. Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back over to management for closing remarks.

Okay. Thank you, operator. Thank you everybody for calling in today and just in general – just the patience for our business and our management team as we have been working through some very challenging circumstances and it's good to be on this call and be able to convey the progress that we have made. And our team is very optimistic about our business. And I think we have accomplished a lot of good things for the first quarter. I know they don't show in our current EBITDA and with these adjustments on our net income. But, with our Heartland transaction at the end of December and getting that under our belt in the first quarter and really had that point in the right direction. We didn't take any debt on to do that to bring the Bango facility in. That's a very – another very strategic asset. These are very expensive refineries and very difficult to permit, build and operate and get online. So we have done a lot to improve our balance sheet from asset standpoint. And I really believe the industry is shaping up now with feed cost coming in line across the countries. So there is a – it's a very positive outlook that we have as far as what we are going to be able to do as we go forward. Our TCEP production in the first quarter was very low, but we got a lot of benefit in our spreads across our Houston plant and our New Orleans plant, our Marrero plants. So we believe that was a good decision. We appreciate the trust that our shareholders put in us and we very serious about getting this business on the right track in spite of the challenges the markets had provided to us. So we feel like we accomplished a lot of long-term things for this first quarter. So thank you for calling in. Thank you for your questions. And if you have any further questions again, please reach out to Porter, LeVay & Rose, our representative Marlon Nurse for further help. So thank you for calling in.

Thank you. Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation. And have a wonderful day.