Good day, ladies and gentlemen, and welcome to your Vertex Energy Third Quarter 2020 Earnings Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Noel Ryan of Investor Relations. Sir, the floor is yours.

Good morning. Thank you, Melinda. And welcome to Vertex Energy's Third Quarter 2020 Results Conference Call. Leading the call today are our Chairman and CEO, Ben Cowart; CFO, Chris Carlson; and COO, John Strickland. We issued a press release before the market opened this morning, detailing our third quarter results. In conjunction with this release, we also posted a conference call presentation that is posted in the Investor Relations portion of our corporate website at vertexenergy.com. We will reference this presentation throughout the remainder of today's conference call. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of Vertex Energy's latest annual and quarterly filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call in the press release issued today. Today's call will begin with remarks from Ben Cowart, followed by a financial review from Chris Carlson. At the conclusion of these prepared remarks, we will open the line for questions. And with that, I'll turn the call over to Ben.

Thank you, Noel. Good morning to those joining us today. Earlier today, we posted the company presentation materials on the Investor Relations section of the website that I'll refer to throughout this call. Let's begin with Slide 4. During the third quarter, we generated both sequential and year-over-year growth in adjusted EBITDA while managing through the impacts of 2 separate hurricanes on the Gulf Coast affecting our operations, together with pandemic-related challenges that continue to reduce global refined product demand. As shelter-in-place orders were lifted, travel activity increased back towards normal levels during the third quarter, contributing to improved availability of UMO feedstock. To that end, as reflected in Slide 7, total direct collections increased 36% on a sequential basis in the third quarter, supported by increased vehicle miles traveled. While miles traveled remained below prior year levels during the third quarter, we still managed to generate 5% year-over-year growth in direct collections in the period. Even though our Marrero refinery was impacted by 8 days of hurricane-related outage during the third quarter, utilization improved materially on a sequential basis given improved UMO feedstock availability. Our Heartland refinery performed well during the third quarter, operating near peak utilization. Given the inland nature of this asset, operations have been less impacted by major weather events, contributing to a consistently strong performance throughout this year. While base oil demand has not recovered to pre-COVID levels, we are seeing conditions steadily improve. Base oil refinery -- the base oil refinery runs cuts throughout the industry have served to tighten supply in some grades, which have been supportive of pricing over the near term. As you've heard me say in the past, we remain highly focused on improving asset optimization. To that end, we initiated a phase 1 start-up of operations at our Myrtle Grove facility during the third quarter. Beginning in the first quarter 2021, we'll begin supplying our Marrero refinery with pretreated [Audio Gap] consistent with our continued focus on asset optimization. We're currently in discussions with third parties to fund the project at Myrtle Grove that would allow us to begin commercially treating raw vegetable oils and organic waste oils that refineries can use as feedstock in the production of renewable diesel fuel. Our development team is currently evaluating 3 separate technologies that will allow us to begin renewable diesel pretreatment process. This project has the potential to be significant catalyst for growth, further positioning our business as a leading supplier of renewable and alternative feedstocks. As the global economy recovers, we anticipate a gradual step-up in demand for refined products, together with a corresponding recovery in margin realization. However, in the interim, refined product spreads remain well below historical averages, with the high-sulfur fuel oil to WTI spread having declined significantly from year-ago levels, as reflected on Slide 9. In summary, all things considered, we executed on plan in what remains a challenging operating environment. We generated organic growth in collections, added several hundred new UMO customers and ran both Marrero and Heartland at elevated rates. While our third quarter operational execution was better than expected, our financial results are still below our own internal expectations. Given uncertainty evident in the markets, we remain mindful of our cash burn. During the third quarter, the total cash burn was approximately $2.2 million. Assuming that our refineries operate on plan and spreads continue to mirror the forward strip, we would expect to burn $2 million of cash in the fourth quarter 2020. As before, we expected to return to positive free cash flow generation beginning in the first quarter 2021. At the end of the third quarter, we had significant cash and liquidity to support our operations for the business. Looking ahead, our management team remains focused on several key areas heading into 2021. First, we remain focused on aggressively growing direct UMO collections, much as we did in the third quarter. We have expanded the geographic radius of markets where we collect while continuing to evaluate a number of smaller tuck-in opportunities that have the potential to grow our direct UMO collections. For the 9 months ending 2020, we've achieved significant new customer additions. With vehicle miles traveled up 50% from the April lows, improved driving activity should also contribute to further growth in that area of the business. Second, although we had additional weather-related downtime and setbacks in October, we remain focused on operating our plants at near-peak capacity during November and December, assuming no additional major weather events. Operating at elevated rates leverage economics of scale throughout the business, so this remains a significant opportunity for us. Third, we remain focused on expansion into new niche markets by leveraging our existing asset base. During the third quarter, we continued to invest in several initiatives designed to grow our market presence as a collector and recycler of used automotive waste streams. The recent restart of the Myrtle Grove facility is one important part of this effort, but there will be more for us to share on our year-end call. Finally, capital discipline remains a top priority for our entire team. We have eliminated nonessential expenditures and are focused on conserving capital to support the long-term growth of the business. Consistent with our commitment to maximize value for all investors in Vertex, we have launched an internal review of strategic alternatives for our business. These alternatives may include continuing as a public stand-alone organization, going private or selling certain assets to a strategic partner, subject to the review and approval of our Board of Directors. There's no formal time line for this process nor have we chosen any one specific alternative at this time. We will provide further updates on the matter at such time that our Board of Directors deem appropriate. With that, I'll turn the call over to Chris for his prepared remarks.

Thanks, Ben. And welcome to those joining us on the call today. For the 3 months ended September 30, 2020, the company reported a net loss attributable to Vertex of $2.4 million versus a net loss of $1.1 million for the third quarter 2019. We reported adjusted EBITDA loss of $500,000 for the third quarter 2020 versus a loss of $1.9 million in the prior year period. As reflected by the adjusted EBITDA bridge on Slide 6, a gain on derivatives, improved margin capture and better operational execution within our metals business contributed to the year-over-year improvement. On a sequential basis, adjusted EBITDA increased $4.8 million in the third quarter 2020 when compared to the second quarter 2020. During August and September, 2 separate hurricanes brought severe flooding and high winds that adversely impacted operations at the company's Marrero, Louisiana refinery while limiting outbound shipment of finished products along adjacent waterways between Houston and New Orleans for approximately 2 weeks. Weather-related disruptions at the Marrero refinery more than offset organic growth in direct UMO collections and a strong performance at the Heartland refinery, which operated at peak capacity during the third quarter 2020. Turning to Slide 10 for a discussion of our balance sheet and capital structure. As of September 30, 2020, we had total cash and availability on our lending facility of $15.5 million and $1.4 million, respectively. Included in total cash amount is $10.1 million held in the company's special purpose vehicles related to our Myrtle Grove and Heartland assets, which are limited to use by each SPV, respectively. Vertex had total term debt outstanding of $11.1 million as of September 30, 2020, which included $4.2 million related to funds received under the Paycheck Protection Program or PPP, which is part of the recently enacted Coronavirus Aid, Relief and Economic Security Act or CARES Act. Under the terms of the CARES Act, the PPP loans accrued interest and fees may be forgiven following a period of 24 weeks after PPP loan proceeds are received if they are used for qualifying expenses as defined by the CARES Act, which are subject to certain exclusions based on the number of full-time equivalents retained and maintaining at least 60% of the level of compensation during the covered period. At this time, we have used the entirety of our PPP loan proceeds to pay for payroll costs and other eligible expenses, consistent with the terms of the PPP. We submitted our forgiveness applications to our lender during the third quarter of 2020. With that, I will turn the call over to the operator as we take questions from those joining us on the call today.

[Operator Instructions] And we'll take our first question from Eric Stine with Craig-Hallum Capital.

So maybe first just on -- obviously, you're making continued progress on collection volumes. Just wondering if you can take a step back, think about -- I know you purposely had some extended downtime in the second quarter with the goal of really pushing back feedstock to the generator and hoping to impact the pricing of that feedstock. Just maybe how that played out. Clearly, from results, I mean, that did play out positively. But maybe how that played out versus your expectations if you were looking at this coming into the third quarter.

Okay. Yes. Eric, I think it's played out well, not to make up for the total loss of spread pre COVID because a big portion of our spread compression is related to diesel prices, which ties to the value of our finished product that we produce at the Marrero refinery. Now base oil has held up pretty good, but we have seen the used oil values in comparison to high-sulfur fuel oil improve to a historical level. I mean it's still not good enough, but I think the team has done a really good job. We -- with the recent downtime with these storms where we had to shut the plant, bring it back on, shut it back off, bring it back on, it's been up and down. That downtime has allowed us to really build record levels of inventory today. And so prices on used oil both at a street and at third-party level continue to drop.

Got it. And then, I mean, where -- I know the market as a whole, much different than, say, back in the 2014-2016 time frame, but I mean, do you feel like the market is much more rational in terms of the charge for oil -- pay-for-oil dynamic based on just the volatility of oil prices overall?

Yes. I think that in comparison, the market feels like it's in containment where there's probably more used oil than there is capacity at the moment or available market but not by much. And we still see some irrational behavior with certain collection companies that are working outside a charge type of model. In some cases, we've done the same where we're expanding our footprint. For us, we have a large third-party supply that has a much higher cost. So for us, our return to shareholders is very, very good. And our overall volume directly collected is still at a charge. So -- but in most cases, the market seems to be at a stable place at a street level. There's just not a reason to go out and get too aggressive given your charge is up unless there's unique circumstances. So...

Right. Okay. And then maybe lastly, just on Myrtle Grove. Maybe if you could just expand on that a little bit. Just curious, what type of investment what you're going through now entails on your end? And then -- and maybe I missed this in the prepared remarks, but just what type of time frame we should expect in terms of potential outcomes there?

Yes. So one, we're excited that we've initiated start-up of that facility. That's been a long time coming. It's a very robust asset, and we really needed to be positioned to even open the gate on this property. So it's a 41-acre site on the Mississippi River. We've got 9 million gallons of storage on the site, 3 truck racks. We've got brand-new hydro-treating assets on the ground that were never installed, rail capability, barge capability with some additional capital. So this is -- this asset is extremely valuable in the market, and we've carried this for an opportunity to develop it out. Tensile has been a good partner with us, providing some seed capital into that asset. So they own 15% of the Myrtle Grove SPV, and the company owns 85%. We've deployed some of that capital in the start-up of the facility. And we've also launched a new division that will go out and pick up what I would term as nonconforming feedstocks that our refinery at Marrero cannot process directly. This requires pretreatment where you're picking these materials up at a much lower cost than third-party used oil or even collected used oil off the street. You bring it back to the facility, use a small portion of the infrastructure today to clean this hydrocarbon up where it could be put through the refinery and we can capture the value. This typically is the removal of solids and water and some metals and glycols from these raw materials. So we've got the ability to manage this both at the facility and also with some new rolling stock and equipment and new hires that we brought in to stand this business up. So that's phase 1. And then obviously, we got much bigger plans for the site, and we're working on an additional pretreatment play where we would bring additional pretreatment technology for crude vegetable oils that would be preprocessed and sold into the advanced refining industry where these oils will be cracked into renewable diesel, based on the development of this renewable diesel market that is underway.

Next, we go to the line of Amit Dayal with H.C. Wainwright .

Just continuing on the Myrtle Grove line of questions. So is this going to be positioned as a pretreatment facility, Ben? Or will we see finished products coming out of this facility over time, obviously? And if we do see finished products coming out, is there a particular finished products we are looking to focus on? Or is it going to be sort of a mix of end products from this facility?

Yes. So good question. So this facility, again, by its size, will come in to the market in layers. So the first couple of layers here is pretreatment: pretreatment for our Marrero refinery, one; and pretreatment potentially for the renewable diesel refining sector. And obviously, we've got a lot of finished product assets, so our hydro-treating assets that are on the ground, our fractionator, our base oil technology that we've developed through this SPV. So we have the ability to invest towards additional base oil capacity. With our relationship with Bunker One and the demand for finished marine fuels, we've been working on certain technologies that could be placed on that property that would take advantage of some of the local low-sulfur crudes that could be processed as well. So long term, the site very easily could be a finished product facility, along with the pretreatment work that's underway today.

Understood. And just looking into the fourth quarter. I mean you've had a pretty strong outcome for the third quarter. Does this momentum continue with the economy opening up, collections stronger compared to the year-ago period even despite these headwinds? So in the fourth quarter, should we expect continued improvements? Or how should we sort of think about the fourth quarter?

Yes. The fourth quarter is off to a really good start at our collection level. Last quarter, we've made significant investments towards that line of business. We've invested in a lot of new rolling stock, a lot of new trucks. We've reinvented our filter business. We've moved away from drum containers, and we brought in container boxes for our premier customers that were able to dump at a generator location instead of double handling that material. These trucks are very expensive. We've got them in all our markets in the South. We already had them up in our Midwest market. So we're very excited about that level of quality that we're delivering back to our customer base. This has certainly been helpful in our region to really change the way in which filters are being handled. In addition, we have completed a waste antifreeze plant, where we're now able to process all our waste antifreeze, convert that into high-purity finished coolants that we can supply back to our customer base. In addition to that plant, we've done a complete turnaround with our filter processing facility in Pittsburgh, Texas. So this collection business is well oiled and well suited for growth. We've got the right mix of services. We can deliver a lot of value at a street level to our customers today with these improvements, and we believe that that's going to really drive our organic growth and some tuck-in opportunities around the collection business.

Understood. Just one last one. In terms of your strategic review initiatives, can you give us any color on what's sort of driving this line of action?

Yes. No, I think that our relationship with Tensile has certainly demonstrated what additional capital can do for the company with the assets that we have carried through a very difficult period of time. We believe that the time is now for us to really take this business forward. Unfortunately, we don't have the currency in our share price. And so we've had to look at different alternatives on how do we navigate the business forward without diluting our shareholders and create value around assets that we've been paying for. And so in general, we're going to -- this is the same language that we had out there when we kind of married up with Tensile with our Heartland and our Myrtle Grove facility. So we're excited about the future of the business and the opportunities it holds and the window of timing. And we just want to just be transparent with the market and let people know we're moving this business forward.

Our next question or comment comes from the line of Michael Hoffman with Stifel.

Ben, Chris, hope everybody is doing well down there, and you've managed to recover some from all these hurricanes. Some year, huh?

Michael, yes, it's been a hell of a year for sure.

On so many levels. Can't even believe it, it's the 10th of November. So back to the cash burn comment. When you look at the PowerPoint, it very specifically footnotes that about $10 million of the $17 million, rounding, is -- has limited use to purposes related to the special purpose vehicle. So help us think about the $2 million a quarter burn. How much is being funded out of the $10 million that's restricted versus could be funded out of the, rounding, $7 million that's unrestricted?

Yes. Michael, I would say about 30% to 40% of that is in the SPVs. As Ben has kind of highlighted, a lot of the effort right now is around the Myrtle Grove asset. So that's where some of the SPV funding is restricted. In addition, there are some ongoing investments at the Heartland facility throughout the fourth quarter and then into next year.

So given -- cross our fingers, if we don't have any more hurricanes in the Gulf in the fourth quarter, where spreads are, your improved collection, should the non-SPV-related burn actually be neutral to slightly positive?

No. I think that we'll probably have more burn on the non-SPV-related business. Right, Chris?

Operational, yes.

Yes.

Yes.

And that's really related, Michael, to the compressed spreads at Marrero, one; and then some of the investments that we've made. Part of that for this third quarter is we invested capital into some -- a lot of equipment, into an antifreeze plant, et cetera. So we're in start-up in the fourth quarter in some of these new investments. And so we anticipate another cash burn for the fourth quarter of probably around $2 million so...

Okay. And then -- so that all is in the fourth quarter, that non-revenue-generating part -- it isn't generating revs yet, it's sort of outflow to drive a return and then you turn cash positive in 1Q because all that incremental spending is done and we're in theoretical normal asset utilization. That's the thinking?

That's right. And let me just be clear. October was no walk in the park for our Marrero facility with additional storms in the fourth quarter. So we think we're behind that. In November and December, we should be operating at full throttle and that being behind us. So that's all kind of part of that $2 million burn as well, right?

Sounds right.

Fair enough. With the stay at home, work from home, all of a sudden, the calendar becomes kind of a giant blur.

I mean it's been -- this quarter has been amazing as far as what our team has been able to accomplish under the unbelievable challenges, but it's still -- we've had our fair share of setbacks. It seems like a broken record when you talk about weather events and hurricanes, but this year has been unbelievable on our operations in the Gulf. Our refining and marketing business in Port Arthur, we got -- all our suppliers got shut down. We were delayed several weeks. I mean it was a big impact to the business so...

Yes. Well, when was the last time we got into the Greek alphabet for storm names? It's been a long time.

Right. But I think what's interesting is the resiliency of the business even with all that in mind. We would have been EBITDA positive and coming through this blazing, but it is what it is. And so we're not -- we're tired of making excuses with weather or anything else. We're going to move the business forward. We got a handle on it. We're very excited about where our assets sit and what they can do in this current market condition. It's requiring a lot of hustle and reinventing certain areas of the business, but we've gotten a lot of that done.

Okay. So teasing out what has to happen for 1Q. So the incremental investing is behind, without any storms, spread stays where it is, but you're at a higher asset utilization through both Marrero and Heartland, and that leads you to at least cash breakeven.

Oh, yes. Yes, for sure.

That's the way -- that's how to think through the process. So for our model, those are the things we're thinking through.

Yes.

Okay. All right. And then what -- I think we're at about 90% of vehicle miles traveled nationally. And it's obviously different in pockets of the country, but I'm not sure that number changes materially, certainly, without maybe the vaccine, things of that nature. So if 90% VMT and all of the knock-on consequences through used oil supply versus base oil demand, how far away from equilibrium are we between supply and demand?

I spoke a little bit a few minutes ago about that. I think we're slightly oversupplied, I wouldn't say by much and maybe, call it, 51%, 55% type of breaking point. We -- and part of that is because of some of the downtime in the markets and in the Gulf. We literally are full across every tank we got on UMO. Both -- it's just the market's backed up. And so we feel very comfortable deep into the first quarter and on into the second quarter based on our ratable supply chain and all our inventory that we got on hand. The inventories have come in at favorable pricing. We think that we've seen the bottom on the refining compression. I think we're going to see crack spreads start to improve across the major industry that affects the value of our finished products going forward. So the outlook looks improved other than more COVID setback. And when I see all these shutdowns and people kind of reeling back again, there's -- it's hard to quantify what impact that may have on the business.

Okay. And then last one with regards to your strategic review, including possible sale or go private, blah, blah, blah, what -- do you have a time line on when you're arriving at conclusions on this?

No, no time line, no path picked. We just feel like we need to continue to evaluate different alternatives to maximize the value to our shareholders and move the business forward. I think the opportunities are now for the business. There's not a lot for us to fix. It's really time to grow and build the business, and we've got to be able to do that.

Okay. And the last question on that regard. Is it a couple of million dollars a year, is what your cost to be public is?

Yes, that's about right.

Ladies and gentlemen, there are no further questions. We return to Mr. Benjamin Cowart for closing remarks.

Well, thank you, everybody. We appreciate your presence on the call today. While most upcoming Investor Relations events have been rescheduled from live to virtual formats, we remain active and engaged with our Investor Relations work and our coverage analysts. During November, we will attend the 11th Annual Craig-Hallum Alpha Select Conference in virtual format. We encourage you to contact your institutional salesperson should you have any interest in attending. In the interim, should you have any questions, please contact our Investor Relations team at ir@vertexenergy.com. Thank you, everyone, for joining us today. This concludes our earnings call.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.