Benjamin Cowart - Chairman, Chief Executive Officer Chris Carlson - Chief Financial Officer John Strickland - Chief Operating Officer

Eric Stine - Craig Hallum Gerry Sweeney - Roth Capital Brian Butler - Stifel Tom Bishop - BI Research

Greetings and welcome to the Vertex Energy Inc. 2016 Fourth Quarter and Year-End Financial Results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ben Cowart, Chairman and CEO. Thank you, you may begin.

Thank you, Operator. Good morning and welcome to Vertex Energy’s 2016 fourth quarter and full year financial results earnings conference call. Joining me today on the call is Mr. Chris Carlson, our Chief Financial Officer; Mr. John Strickland, our Chief Operating Officer, and Michael Porter, our Investor Relations consultant at Porter, LeVay & Rose. 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 its current expectations. I want to present some key accomplishments and a summary of 2016, including recent business updates, and will provide further thoughts for 2017 after Chris Carlson, our CFO reviews our financial performance. Our 2016 highlights include cleaning up our balance sheet by selling our Nevada assets, which was a drag on results; developing our Group III import business; leading the industry initiative in charge-for-oil that has been a positive for both the company and the industry; receiving new permits for our Marrero facility; and building a cohesive leadership team for the company that was tried and true and under fire, and is well suited for the challenges moving forward. In early 2016, we were severely impacted by the decline of oil prices and a fire at our Heartland facility. Despite these events, we took some crucial steps to stabilize and build a long-term business, including modifying our operating and pricing model for oil collection, reducing headcount and overhead, and cleaning up our balance sheet. As highlighted, first we lowered the cost of procuring used oil in our street collection operations by shifting to a charge-for-oil business model where we implemented fees for the handling of used oil and the management of used oil filters and various other services performed by our collection division. With the gradual increase in commodity prices, this business model change helped to offset the lower finished product values in the energy sector. Also through price and adjustments on our third party supply, we were able to further lower our cost of feedstock during this challenging period. Second, our efforts to contain staffing costs and overhead has produced material results, including a 31% reduction in SG&A expenses in the fourth quarter relative to same period a year ago. Third, our Group III base oil business remains solid and is moving forward and meeting our sales objectives. As you may recall, we began marketing this product last summer under an exclusive agreement with Penthol, our Dutch partner, to serve as the marketing and sales agent in North America, representing the ADNOC Group III product from the recent refinery expansion in Abu Dhabi. Lastly, we entered into an agreement with Encina Business Credit, providing for up to $30 million in senior secured debt which allows Vertex to pay off its lenders and strengthen its cash position. The new funding also allowed the company to acquire a strategic collection company in Louisiana. Regardless of the current commodity issues pertaining to our finished products, we remain vigilant and committed to growing our business and improving our financial performance in 2017 and beyond. I will provide some guidance after Chris has reviewed our 2016 financials. I’ll now turn the call over to Chris Carlson, our CFO.

Thank you, Ben. The company intends to file the year-end 2016 10-K in the next few days. I will now review our financial results for the 2016 fourth quarter and year. All of our financial statements, unless otherwise noted, are prepared in accordance with generally accepted accounting principles. For the fourth quarter ended December 31, 2016, we reported consolidated revenue of $31.1 million compared to $20.9 million in the fourth quarter 2015, an increase of 49%. For the year ended December 31, 2016, consolidated revenue was $98.1 million, lower than the $146.9 million reported for the year ended December 2015. Overall, volume in the business was down 22% and the markets were down approximately 20%. In our black oil division, which includes our Marrero, TCEP and Heartland business units, revenue was $23.8 million for fourth quarter 2016 as compared to $17 million in the fourth quarter 2015, an increase of approximately 40%. Volume increased 14% due to higher production at the Marrero and Heartland facilities. For the year ended December 31, 2016, the division reported $76.6 million compared to $103.9 million for the same period in 2015. The refining and marketing division produced revenue of $3.2 million in the fourth quarter of 2016 versus $2.7 million for the fourth quarter of 2015. Revenue for the division during the 12 months ended December 31, 2016 was $13.2 million versus $31.2 million for the same period in 2015. Overall volume increased 22%. For the fourth quarter 2016, Vertex recovery division generated $4.1 million in revenue, an increase of 249% from $1.2 million a year ago. For the 12 months ended December 31, 2016, Vertex recovery reported $8.3 million compared to $11.9 million a year ago. The increase was driven by increased volume through opportunistic transactions that materialized during the fourth quarter of 2016. For the fourth quarter ended December 31, 2016, our gross profit was $5.3 million compared to $378,000 during the same period last year, an increase of 1,301%. Gross profit for the 12 months ended December 31, 2016 was $16.3 million compared to gross profit of $10.7 million for December 31, 2015. Gross margin benefited in two ways from the added collection services business. Not only did it contribute $4.5 million of additional revenue but it also removed an operating cost, further boosting overall gross margin for the business. Gross profit margin was 17% for the three months ended December 31, 2016 compared to 2% during the same period a year ago. Gross profit margin was 17% for the year ended December 31, 2016 compared to gross profit margin of 7% for the same period a year ago. Gross profit for the black oil division was $4.6 million during fourth quarter 2016, which was a 2,037% improvement over a loss of $239,000 in the fourth quarter 2015. Per-barrel margins increased over 1,000% for the fourth quarter 2016 over the fourth quarter 2015. Refining and marketing gross profit decreased 34% to $275,000 in the fourth quarter 2016 compared to a gross profit of $417,000 a year ago. Per-barrel margin decreased 46% for the fourth quarter over the fourth quarter 2015. Vertex recovery generated gross profit of $388,000 in the fourth quarter of 2016 compared to a gross profit of $200,000 a year ago, a 94% increase. Our consolidated per-barrel margin improved over 1,000% in fourth quarter 2016 compared to the same period a year ago. Selling, general and administrative expenses were $4.8 million in the fourth quarter 2016 compared to $7 million for the fourth quarter 2015. The 31% improvement of our SG&A quarter-over-quarter was the result of a reduction in headcount and our continued focus on lowering expenses. For the 12 months of 2016, SG&A was approximately $20 million versus $24 million a year ago. We reported a net loss of $2.4 million or $0.07 per share in the fourth quarter 2016 compared to a net loss of approximately $3 million or $0.10 per share in the fourth quarter 2015. For the year ended December 31, 2016, we reported a net loss of $4 million versus $22.5 million for the same period a year ago. Our annual EPS was calculated using an average of 30.5 million shares outstanding. As of December 31, 2016, we reported cash and cash equivalents of $1.7 million. Our term debt, including capital leases, was approximately $14.4 million, including $4 million owed to Goldman Sachs. Our long-term debt was approximately $27 million a year ago. Now I’ll turn the call back over to Ben Cowart, our CEO.

Thank you, Chris. On February 1 of this year, we took steps to clean up our balance sheet and entered into a funding agreement with Encina Business Credit LLC, providing for up to $30 million of senior secured debt facility. We used some of this capital to not only pay off our prior lenders and consolidate our debt into one facility, but also to strengthen our self collective platform by acquiring a strategic collection company in Louisiana. During 2016, our collection business contributed 20 million gallons of our overall feedstock and we believe that we will see a significant increase in 2017 as well. We anticipate we will process more than 25 million gallons of used oil from our collection operations this year. Our goal for 2017, which factors in current market conditions around our raw material and finished products and our production rates, is as follows. We expect revenues of between $120 million and $140 million, gross profit of between $25 million and $27 million, gross profit margin between 17% and 20%, operating EBITDA of between $6 million and $8 million. In closing, we have built an all-weather business in 2016. For 2017, we will focus on increasing our collection operations. We will be working on our finished product strategy and have multiple R&D projects underway. We are continuing to develop our Myrtle Grove site and our Cedar Marine terminal facility, realizing that they have a $2.5 million annual carrying cost to the company. We will continue to build and expand on our Group III business across the U.S. We shall maintain our focus on the guidance numbers that we just provided today and further position the company by the end of 2017 for significant opportunity. The steps we took to retool the business in 2016 give us a high degree of confidence in our business plan and assumptions for 2017. I’ll turn the call back over to the Operator, but before we do that, I want to let the listeners know that if you have any follow-up questions or comments, please feel free to contact Porter, LeVay & Rose, our investor relations representative Marlon Nurse at 212-564-4700. I also want to mention that a digital replay will be available by telephone approximately two hours after the call’s completion until June 30, 2017. Details on how to access the replay can be found in our recent press releases and on our investor relations section of our website at www.vertexenergy.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 publicly available. Thank you.

[Operator instructions] Our first question comes from the line of Eric Stine with Craig Hallum. Please state your question.

Good morning, Ben. Hi Chris.

Hey, good morning.

So I just wanted to dig into black oil a little bit, and maybe just--could you talk about capacity utilization in the quarter? I think you were running into some issues with feedstock just because of warm weather, but you posted a very good top line number, so did you have to run the plants at a lower rate than normal, or was pricing at a point which it more than made up for it?

Yes, I’m going to let John Strickland answer those questions specifically, but just to set the tone, when you look at the fourth quarter compared to this--2016 compared to fourth quarter 2015, the markets were somewhat comparable. I think the WTI average for the fourth quarter in ’15 was around $42, and the average for ’16 was $49, so the market was up about 16%. But our production volumes did increase probably about 22% year-over-year for the fourth quarter, so we were up; but in light of the new permits and the capacity improvements that we made at the facilities, we did struggle around the feedstock supply, based on some market demand that was out there. I’ll let John kind of speak a little bit more to your questions and the supply situation.

Yes, I’ll just kind of highlight it on a high level here. At Marrero, we run 90% of budget because the feed issue we had, and that was because of the feed demand that was on the east coast and the Gulf Coast for the tenders coming in and taking the used oil out of the country, so we ran it right at 90% of budget for the full quarter because of feed issues [indiscernible] at that point at Marrero.

Yes, so I would say Marrero should have performed much better than what it did, had we had the feed available to hit these new capacities.

Yes, our spread margins were good, what we budgeted; it’s just we didn’t have the feed to do the capacity we needed to do.

So on our Heartland operation, we had the feed but base oil prices were down about $0.17 a gallon compared to what we anticipated, so if I look over the business and say, okay, our EBITDA is not where we wanted it to be, it would be in those two buckets. It would be a shortage of feed to our plan for Marrero and base oil prices being softer at Heartland than what we anticipated.

Got it. So now just transitioning to margins, was there any, as conditions have improved in oil markets and margins ticked down a little bit sequentially, was there any pushback you’re seeing in the market relative to the charge-for-oil, or maybe an update on where that stands, that’d be helpful.

Yes, so when you have a strong demand for a commodity like the UMO and a lot of oil leaving the country, which was basically what was going on at that time. It always will put more demand on the street for that oil. I would say that our charge-for-oil stayed pretty strong relative to those conditions, and Chris, I think our average across our collection business was, what?

At the end of the year?

For the fourth quarter.

Twenty-seven cents.

Okay, so we’re still in there at $0.27, so I’m pleased with that based on what we’ve seen in the demand category.

Got it, thanks for that. Maybe just last one from me on recovery, pretty strong quarter. Just maybe the outlook there in light of higher oil prices - I mean, it sounds like that’s kind of an opportunistic business, but do you see a change in the market, people maybe wanting to monetize some strand in hydrocarbons as prices have improved?

Yes. I do. I see our recovery business getting better. It looks good for the first quarter this year, and we’ve budgeted a strong year for recovery.

Okay, thank you.

Thank you.

Thank you. Our next question comes from the line of Gerry Sweeney with Roth Capital. Please state your question.

Good morning, Ben and Chris.

Hey, good morning, Gerry.

Speaking a little bit about black oil and digging in a little bit, it sounded like there was a little bit of pressure because of oil leaving the country. Do you have any visibility into the current tenders, what’s going on in Q1, Q2? Does that slow down, is that staying stable? Maybe a little bit of commentary as to how that’s developing and the impact.

Yes, the demand is still there. The problem is there was a real surge of demand that stripped inventory out of the market, so there’s not a lot of surplus inventory sitting around, so we are--the job our supply team has done over the last three months is amazing. We’ve added a lot of brand-new suppliers to the business, we’ve gotten more granular with rail car and truck deliveries, and so we are overcoming that issue in the first quarter. I wouldn’t say we’re 100%, but we’ll definitely go into the second quarter with a lot of new supply contracts and suppliers that we didn’t have in the fourth quarter and in some cases in the first quarter this year. So I feel very confident that we’re going to hit our production targets going forward for the refiners.

And maybe you could help me out, I think John said Marrero ran 90% of budget. Is that 90% utilization, or--? Just wanted to get a little clarity on that.

No, it’s just a budget that we had set forth in the fourth quarter.

It’s more internal. You know, I would say that our budget for 2017 will be at our permit capacities, not necessarily our nameplate or what we could do. We’re anticipating 64 million gallons roughly in our budget for 2017 as far as a throughput of feed for the refinery at Marrero, which is make-up capacity, so I feel good that we can hit those numbers because we can throttle that facility up to make sure we hit those targets, to make up for downtime and lost production.

Got it. Then just finally, I know you’re expanding or working on the marine fuel opportunity. How is that going, and how is the pricing in that market? I know base oil’s been down, but I heard VGO is actually doing reasonably well. Curious as to the marine fuel market.

Yes, I think the VGO picture may be skewed a little bit. VGO prices are down today compared to WTI and what they’ve been in the past, but fortunately we are moving a decent amount of our production into the marine and diesel replacement part of the market. So we’re making headway, the adoption of the product is good, the quality is good, so there’s no real pushback that we see on the marine fuel industry and moving our product there We have had seasonal demand for heating oil on the east coast, so some of our product went into that market for this window, and we’ll be pushing more of that back into the marine fuel market as that tails off. So I think as John said, our margins are good on our VGO compared to where the market is and where they’ve been, so I don’t see any issues there. There’s good demand and we’re not having any trouble with the product or moving it.

Perfect. All right, thank you very much. Appreciate it.

Thank you, Gerry.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question on today’s call, please press star, one on your telephone keypad. Our next question comes from the line of Brian Butler with Stifel. Please state your question.

Good morning, thank you for taking my question.

Hi Brian.

After the most recent acquisition, can you just give an update on where you stand on total run rate aggregate volumes, UMO collected, and I think you said it was 25 million that you’re collecting, is that the right number on a run rate basis post-acquisitions?

Yes, that’s our target for 2017. There is some other things that we’re working on that could add to that, but we feel like that’s pretty much in our hands with the work and acquisitions that we’ve just done. We hope to exceed those numbers as we go, and we’ve got the capital on standby with the new bank facility to build to improve that. But we’re comfortable with a 25 million gallon volume from our collection operations for 2017.

And what’s your total aggregate volumes collected, or volume UMO aggregated? That usually runs somewhere around 90 million gallons.

Yes, we’re buying probably 85 from third parties--

No, 65.

Oh 65, so we’re buying roughly 65, 70. Yeah.

Okay, and you just mentioned capital. How should we think about capital spending for 2017? ’16 looked like it was a little bit of a light year on the capital spend. Does that ramp up materially?

Go ahead, Chris.

Yes, we’re definitely looking at 2017 to slowly ramp up the capital spend. We’ve got in our budgets right now an estimate of about $2.5 million to $3 million for what I’d call maintenance capex, so that’s our plan for ’17.

Okay, and the guidance you gave is not assuming any additional growth capital beyond that, or--?

That’s correct.

Okay. Then on the capital structure post the new loan and the deal, how should we be thinking about interest expense in ’17 kind of on a quarterly basis?

Right now, I would just assume that we’re right at a 14% rate. We do have the ability within our term loan to ratchet that down to 12%, and you can look at the 10-K and see kind of the details around it, but I would just assume 14% for now.

What’s our dollars, though? Our debt service is much lower than what it was under the Goldman loan.

It is, that’s right. So right now today, we’ve got $12 million drawn, and it’s just going to depend on how we draw that out over the year. So if capex ramps up quicker, we could be at $15 million, $16 million, but we’ll obviously keep you posted as to what that term debt is quarter over quarter.

Okay, but just from a simple perspective, just using 14% on whatever I think you guys have drawn?

That’s right, that’s correct.

Then on the tax rate, are you guys still going to be a zero taxpayer, and how do we think about that going forward from a--when does that switch?

Yes, as of right now, I would look at us as a zero taxpayer for the next three to five years. We still have the NOL in excess of $40 million that as we have profits, we’ll be utilizing.

And how big was the NOL?

It’s just over $40 million today.

All right. One or two more - on the TCEP, is that still closed down for the foreseeable future for the ’17 guidance expected to be in that state?

That’s in our budget that way, but we are running an R&D project around TCEP and spending money in that direction based on some things that we see, so as we go into the year and we confirm some of the assumptions that we have, that may change.

Okay. Short of positive results from whatever R&D you’re working on, where do base oil prices need to get, or I should say VGO or some of the other end products? I mean, from where we are now, does it need to increase another 20 or 30% to make that viable, or is it much larger?

You know, base oil will sometimes lag behind WTI and we’ve seen that, so we’re seeing the recovery of that base oil spread already in the first quarter, so I think we’re getting close to being back on track. Certainly going into second quarter, we should be on target with all our--what we’ve seen as a loss in the fourth quarter, I think everything is fine at this point going forward.

Yes, it’s ratcheting up to get where we need to be.

Yes. So the base oil market is firming up and looking much better now.

Okay, thank you very much for taking my questions.

Thanks, Brian.

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

Hi. Just on the last question with the TCEP, when that might fire up, I think what we’re getting at is what oil price would it need for that to get going again?

It’s really the R&D work that we’re doing that will provide a lower operating cost for the unit and available supply time. So the market price today is fine, so I think we’re well within the market requirements to restart the facility. We increased capacity at our Marrero and Heartland operations so we’ve got a lot of fixed cost leverage that we’re trying to take advantage of first, and all the feed in Texas is going towards the Marrero facility for that reason. But as we see this feedstock availability surface, and I believe that we will based on things that we’re working on, then there’s some things that we want do with the TCEP plant.

Okay, so it sounds like the oil price is not too far off to start that up, it’s just that you’ve expanded other facilities and the amount of oil you can get needs to go to those for now?

That is correct. You’ve hit it right on.

Okay. Now with regards to your EBITDA forecast of $6 million to $8 million for the year ahead, depreciation is going to be running close to $6 million?

That is correct.

And interest is running something a little less than $2 million right now annually?

Right around 2, that’s right, Tom.

What about the preferred dividends, that pretty much being a real cost, where does that stand now?

Well, currently we’re paying that out in kind in B1 stock, so that’s not having a cash impact on the company.

But as far as what it will hit on the income statement?

That shows up in the accretion line item close to the bottom of the income statement.

Right. I see two lines there. It was a tumultuous year financially, so it’s a little hard to know what it’s going to look like going forward on those two lines.

It is, I understand. So I mean, as we get nearer or closer to the expiration of the B1, that will start to come down.

Well, the one number was 9.8, but there’s the retirement of it, and I really don’t--$9.8 million, and I really don’t know how to interpret it as far as what to expect on the preferred line going forward.

Right. Retirement is an interesting term, but it was basically, and I think we’d discussed it on the last call, there was a large B and B1 holder that converted to common, and whenever they convert, there’s an impact on the P&L for that conversion. Again, it’s a non-cash impact, but nonetheless an impact.

All right, so all the more reason why I’m still trying to figure out what that would be going, say, in 2017. What’s going to hit on the preferred line?

Well, the main item that we’re going to see consistently is this accretion of 1.7 that you saw for the year, and that’s the interest which today right now is at 6% that we’re paying in dividends. So that should be the relatively consistent number going forward.

Okay, so when it all shakes out, it looks like the company is still not quite projecting profitability, at least from where I sit, on a normal basis. Is that correct or am I looking at something wrong? You did say $6 million to $8 million for EBITDA, is that correct?

That is correct.

Tom, I think with the items that you and Chris just discussed, you’re correct in our guidance that we’re providing today. Cash flow is positive and net income is not going to be there if we only hit the numbers that we’re providing in this call.

Okay, well let’s hope you beat them. Thank you.

All right, thank you.

Thank you. Our next question is a follow-up from Gerry Sweeney with Roth Capital. Please state your question.

Hi, sorry. Just another quick follow-up. SG&A, $4.8 million I think in the fourth quarter, is that a good run rate on a go-forward basis, or is there opportunity there to knock it down a hair more, or was there something in there that sort of excessively benefited it in the quarter?

There wasn’t anything that excessively benefited it in Q4. I’m not seeing big opportunities to reduce that any further. I guess this time a year ago, we had some pretty big ambitions and I feel like we met those, but again at this time, I don’t see that going down much.

Gerry, right now we don’t an R&D class of expenses, so it all comes out of our SG&A today. We’re in a build-up mode where the company is on its feet and moving forward, and there are some real opportunities that we’re pursuing, so we’re adding people today that we did not have in the fourth quarter last year. But again, we don’t see a material change. Do you have a number Chris, that we compare to fourth quarter on a run--

No, don’t get me wrong, I thought it was a good number so I wasn’t expecting much, if any improvement. [Indiscernible].

You know, we’re working on expenses continually, so we hadn’t changed that mode, but we are moving more to an offensive posture and not defense to get the company moving forward.

And that’s fine. I would 100% agree with that, so just wanted to throw that question out there. Then also, the Myrtle Grove and expenses around that, is that in cost of goods sold, I suspect, or where does that sort of hit the P&L?

Good question. That hits cost of goods sold.

Okay, perfect. All right, thanks guys, appreciate it.

Thank you.

Thank you. Ladies and gentlemen, as a final reminder, if you would like to ask a question on today’s call, please press star, one on your telephone keypad. One moment please while we re-poll for any questions. I’m showing no further questions at this time. This does conclude our question and answer session. I will turn it back to Mr. Ben Cowart for closing remarks.

Okay, thank you Operator, and thank you everyone for being on the call. I would say that 2016 was clearly a reset and a really good year for the company compared to the challenges that were presented to our team in 2015. When I look at the fourth quarter compared to fourth quarter this past year, the one-year quarter-over-quarter, and I see that the market improved 16%, so we got a little help from the market, but then when we look at the quarter-over-quarter improvements that we made and how we cut expenses and how we improved margin, our production rates improved 22% during that period, I really want to give a lot of credit to our people and the hard work in the field to make all these things happen. Our business is on a solid footing. I’ve got good insight on 2017, so I feel really good about where we’re heading. This is the first call and the first time since we’ve been public since 2009 that I could really put guidance in the hands of the investors and the market that we really are comfortable with. So that comes back to building an all-weather business and having the right people in place to execute the strategy on a go-forward basis, so I just want to convey the work that our people have done to reposition the company and put us back on track. We’re moving forward from here and 2016 got us to this place, and so I’m excited about where we’re heading. I appreciate everybody being on the call, and if there’s any other questions, feel free to reach out to Marlon Nurse with Porter, LeVay & Rose, and we will follow up with you. Thank you for calling.

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