Good day, ladies and gentlemen, and welcome to the Vertex Energy Q1 2021 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Noel Ryan. Sir, the floor is yours.

Thank you, operator, and good morning, and welcome to Vertex Energy's First Quarter 2021 Results Conference Call. Leading the call today are our Chairman and CEO, Ben Cowart; our CFO, Chris Carlson; and COO, John Strickland. We issued a press release before the market opened this morning, detailing our first quarter results. In conjunction with this release, we also posted a conference call presentation that is located 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 risk 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'll open the line for questions. And with that, I'll turn the call over to Ben.

Thank you, Noel. Good morning, everybody, and welcome to today's call. Early today, we posted accompanying presentation materials on the Investor Relations section of our website that will be referred to throughout this call. Our business had a record first quarter, well ahead of our expectations entering the year, driven by increased product demand, improved margin realization, disciplined expense management and full optimization of our Marrero and Heartland refineries. We reported record adjusted EBITDA in the first quarter, together with a return to profitability in the period. Without question, our business has recovered in many ways to pre-pandemic levels. Refined product margins at Marrero have increased materially in recent months, while base oil prices at Heartland are sitting at multiyear highs. Group II paraffinic base oil prices remain elevated into the second quarter, which should continue to benefit us over the near term. At our operational level, our team capitalized on these tailwinds, running both Marrero and Heartland refineries at peak utilization rates for the entire first quarter. Last year, we invested several million dollars in new rolling stock to support UMO collection growth. We began to see some of the early benefits of these investments during the first quarter, as total collections increased 17% year-over-year to 10.4 million gallons, exceeding pre-pandemic levels. Collection costs declined nearly 30% on a year-over-year basis in the first quarter, contributing to improved margin realization. Total UMO collection costs declined due to a combination of improved route efficiencies, improved equipment uptime and economies of scale as more gallons were collected on a per truck basis, contributing to improved gross margins. On Slide 5 of our company investor materials, we've reached the year-over-year change in adjusted EBITDA. Start-up costs at Myrtle Grove, our investments in new product lines, together with $500,000 in business development costs were more than offset by improved margin capture and a better performance in our metals division. While the pandemic impacted our business throughout most of last year, the investment and cost actions initially taken in response to the pandemic have materially improved our organizational efficiency as we move into this new year. Internally, our mantra was, don't waste a good crisis, and we didn't. In March, we commenced construction on a new marine facility designed to recover distressed hydrocarbon streams from tankage and barges. The new facility, which is expected to be completed by the end of the second quarter of 2021 will supply Myrtle Grove complex with local continuous supply of cost-effective feedstock for pretreatment. These feedstock supplies will be reclaimed and recycled at Myrtle Grove, resulting in the yield of high-valued intermediate product streams that we can utilize across the refining assets and sell to other end markets. We expect to provide our Myrtle Grove complex with extensive direct-to-marine gathering and storage capabilities during the third quarter of 2021. For the full year 2021, we expect to generate positive free cash flow, net income and adjusted EBITDA. Including the impact of planned turnarounds at both Marrero and Heartland refineries during the second quarter, we expect to generate adjusted EBITDA in the range of $2.5 to $3 million in the second quarter of 2021. Considering our pre-pandemic expectations were for an annualized EBITDA of $15 million to $20 million for 2020, we believe the company is moving back towards these levels as the markets continue to improve. As before, we are actively evaluating several high-impact opportunities within renewables that further position Vertex to support the global transition towards low-carbon energy solutions, as indicated by our significant business development expense during the first quarter. We anticipate these business development expenses to continue at similar levels for the second quarter. With that, I'll hand the call over to Chris Carlson, for a review of our recent financial performance.

Thanks, Ben, and welcome to those joining us on the call today. Turning to Slide 7. For the 3 months ended March 31, 2021, we reported net income attributable to Vertex Energy of $1 million versus net income of $2.7 million in the first quarter 2020. Vertex reported adjusted EBITDA of $6.5 million for the first quarter of 2021 versus $1.6 million in the prior year period. During the first quarter of 2021, a combination of improved refined product margins, higher base oil prices, increased used motor oil collection, improved operating efficiency and strong operational reliability contributed to a year-over-year improvement in operating income and record adjusted EBITDA. Turning to Slide 9. Total throughput at the Marrero refinery increased on both a sequential and year-over-year basis in the first quarter, positioning us to capitalize on improved spread on its bunker fuel production. The Heartland refinery also operated at peak capacity during first quarter, given the higher selling prices on base oil. Prices for Group II base oils increased by more than 20% on a year-over-year basis in the first quarter and remained elevated into the second quarter of 2021. Tight supply conditions in the market, improved commercial and industrial demand, together with higher crude oil prices have all contributed to higher base oil prices. Turning to Slide 10 for a discussion of our balance sheet and capital structure. As of March 31, 2021, we had total cash and availability on our lending facility of $16.4 million at quarter end. We had total term debt outstanding of $10.7 million, which included $4.2 million related to funds received under the Paycheck Protection Program. We applied for loan forgiveness during the fourth quarter and are awaiting approval on our application. In recent months, we have had several Series B and B1 preferred holders exchange their holdings into common stock. During the first quarter, 4.3 million Series B and B1 preferred holders were converted into 5.1 million shares of common stock. Further, during the quarter, 1.1 million warrants have been exercised by warrant holders, resulting in net proceeds to Vertex of approximately $1.7 million. As a result of recent conversions of preferred stock to common stock, our total outstanding convertible preferred stock was 7.5 million shares as of March 31, 2021. Total diluted share count outstanding was 49 million as of March 31, 2021. 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] Your first question for today is coming from Eric Stine.

Eric Stine with Craig-Hallum. So maybe just to start, maybe you can just expand a little bit on the high-impact inorganic opportunities. And in the area of renewables, maybe just talk a little bit about what that could look like, because your commentary in the release would certainly indicate that you've got some things that are potentially near-term.

Yes. Eric, this is Ben. So I think we've indicated that we've been looking at a shift in this vertical to really add it to our portfolio of energy transition accomplishments. We've done a good job from I guess, even going back before Vertex, just finding ways to recycle, reclaim, re-refine and repurpose hydrocarbon material and reduce our dependency on carbon and crude. So that's always been a foundation for Vertex. We see this renewable space, specifically on the fuel side, being an additional opportunity for the companies and more specifically with assets that we own. We've talked about starting our Myrtle Grove facility and getting it up and running. Part of that is pretreating feedstocks that go into existing refining assets. That's a first step. We also see the opportunity of garnering valuable organic feedstocks, the same that we can pretreat and either supply or produce renewable diesel from those materials. We're looking at the marketing of fuels along this renewable channel. So there's a lot of things that's on our plate today that we're evaluating. And we're very early in these discussions, but we just want to keep the investors aware that, that is a focus for us, and we're continuing down that path. Nothing more to report today other than that.

No, that's great color. I do appreciate that. Maybe just turning to your -- well, on the collection side and spread management, would just love your commentary on where the market stands today, given, certainly, oil prices have recovered, but very volatile in terms of the whole pay-for-oil charge-for-oil dynamic.

Yes. I mean the oil prices, crude prices are coming up. Base oil prices are certainly up very strong. And when you see market prices on commodities move way up, you're also going to see raw material costs move with that to some degree. Fortunately, we're enjoying pretty good spreads in the business because our raw material costs are not moving at that same pace. And so that's very positive. Now we still think there's a lot more margin on the product side with Marrero. We think base oil prices are beyond what our expectations were. So I don't want to forecast better numbers base oil-wise. But I do see -- if you look at pre-pandemic diesel prices and prices for marine fuel, we're still way behind those numbers. Where the used motor oil is going to end up, I believe the market is oversupplied today to the available refining capacity. There could be RFO or fuel markets that could open up for that molecule beyond this supply. So we've just got to wait and see and take it quarter-by-quarter. But as of today and as of what we see going into second quarter and looking into the year, I think we're in a very good place from a spread standpoint. Now how does that result in charge-for-oil, pay-for-oil? I can tell you, in the market today, there's participants that are clearly paying good money for used motor oil in order to build their volumes. And them being mainly base oil producers, they have a very big spread today that they can work from. And so that's a decision, I guess, they're making in the short term to expand their business. We've done good to keep our costs below some of those market prices, significantly below. And a lot of our spread on the Marrero side I will contribute (sic) [ attribute ] to the efficiencies and the work that our collection team has done last year during COVID and on into the first quarter.

Got it. Okay. Maybe last one for me. Just a little bit on the EBITDA. Clearly you're feeling much better about the business, and talking about optimism that you've returned to pre-pandemic levels and where you had guided previously on EBITDA. I know you're factoring in turnarounds and that sort of thing. But should we view the forward quarter EBITDA guide and also the commentary about 2021 that, that's more just being conservative given how things have transpired over the year -- last year or so? Or are there additional factors that mean that you are looking for in Q2, a pretty decent sequential step down in EBITDA and also setting a bar which looks pretty -- or quite achievable for the year?

Yes. I think what we're trying to do is manage expectations. We know in the first quarter, base oil prices were very, very strong. We could see some improvement on our distillate pricing, but the demand -- pre-pandemic demand has not been fully restored. So we just -- we got 2 turnarounds in the quarter. And so we're -- I think we're just trying to be very cautious with our credibility with our market, to be sober about where things are. And we've been surprised ourselves. The market has been really good to the business. The plants have run at peak levels. Our teams have done a great job. First quarter was just a stellar quarter for the company. And it has continued to operate that way. We had to shut the plants down and -- done our turnarounds, but we got a really big turnaround for the Marrero facility, which is our big annual. And that takes you off-line and all that margin that you normally see, you won't get. So hope that's a good enough answer.

Your next question is coming from Amit Dayal.

This is Amit Dayal with H.C. Wainwright. Ben, can you give us any color on your ability to keep these UMO collection costs contained? Your press release highlighted a 30% decline in UMO collection costs this quarter. Do you think these efforts can remain at these levels? Or do you see some appreciation in costs associated with this?

Yes. We definitely expect more efficiencies and we're seeing strong vehicle miles traveled, volumes coming into the collection branches. So we're -- in the first quarter, we were seeing month-over-month improved volumes at over 10%. So that's part of what you're seeing in the first quarter. So you've got to give the market time to reset from all the vehicles that's been parked during the pandemic. So people are getting out, moving around, more oil changes. I think a big part of this was the work during the pandemic, where we were adding new customers every day, that you couldn't really appreciate or see until all this volume from our existing customers and all the new customers have come back to the market. So we made investments in trucks. We anticipate having more trucks on the road, more capacity to take all these gallons. And we also think there's going to be an increase of volume. We may get over vehicle miles traveled pre-pandemic that really adds margin to this business. So the key is volume per truck. And I think we are doing really well with the equipment that we got and equipment that we bought, to say that we anticipate the collection business to continue adding strong value back to the refinery as far as low-cost feed. So that's our view today.

So if we think of the collections business from a capacity perspective, like what is our capacity for UMO collections? Are you running at 70%, 80% of that right now? Do you think you could -- or maybe even lower? And obviously, it looks like we have taken market share, and we're seeing some positive benefits from that. But how much higher can our capacity collection be? What would be the gating factors on that front? Any color on that would be helpful.

Yes. I think with the -- again, the addition of equipment, we've prepared for growth for this year. And so I would say we've got 2 regions. We have our Gulf Coast region, and we have our region up in Ohio, up in the Midwest. And we're probably a little bit tighter in the Gulf just because volumes have jumped up pretty well already. But I would say we've still got another 15% to 20% capacity on that equipment. And then up in Ohio maybe a little bit more than that, maybe around a 25% capacity. We've made some investments there as well. So -- and we're well funded to put more equipment out, if that's what we need to do. So I think we're really waiting on the market. We don't want to get ahead of ourselves. As the market comes back, people get out and get moving around, I think you'll see more vehicle miles traveled data that reinforces more oil changes and more volume back to this investment that's been made.

Understood. Can you give us any more color on this distressed hydrocarbon offering that you are bringing to the market? How much has -- how much investment has gone into this? Any color would be helpful.

Yes. This is done with our joint venture capital with Tensile. So they're not only a partner with us at Heartland, but they're a 15% stakeholder with our Myrtle Grove business. And the Myrtle Grove asset has been something that we've carried for many years, from 2014 when we acquired it. Because we knew the value of this asset and what it could bring to the company and our shareholders long term. We're excited that we've initiated the opening of the Myrtle Grove facility. This investment that you're asking about is really an equivalent of a collection arm to the Marrero refinery, where we've got specialized vacuum trucks and unique equipment that can go out and pick up hydrocarbon streams, not really used motor oil. These are streams that would come from marine markets, oils and fuels that would need to be pretreated, cleaned up, water, solids removed and then preprocessed, are blended back into bunker fuels or are even feedstocks to other types of refining. So the bigger part of the investment was the restart of the Myrtle Grove site. This piece is more all the logistics related. So trucks, equipment, and now we've got this marine dock where we can efficiently access all these marine streams and bring them through the dock and onto the Myrtle Grove site. So as far as investments, we've done all of this out of that cash that we've had on hand in the Myrtle Grove SPV, which was part of our plan.

Your next question is coming from Brian Butler.

This is Brian Butler from Stifel. So congratulations on the strong quarter. I just wanted to touch a little bit on the $6.5 million of EBITDA, and you talked about it a little bit. But thinking about that $6.5 million going to the midpoint of the 2Q guidance of $2.75 million. Can you maybe help put it into the buckets, how much of that is you guys being conservative on base oil price maybe coming in? And how much is the turnaround? And is there anything else that kind of works into going from that $6.5 million to the $2.75 million?

Yes. I think that there's -- the turnaround is probably our biggest factor as it relates to guidance towards the second quarter numbers. But I also believe that the first quarter was as good as it gets for a quarter's performance with the assets and the things that we got in place. We think that there's going to be some -- some costs related to the turnaround from being down and lost margins associated with that. So you've got the actual equipment, people, labor, contractors, and then you have the loss of spreads. So the bigger the spreads, the more impact these turnarounds actually have on the business. And from there, we're trying to be sober about potential spread compressions related to third-party UMO costs and other things that may not happen, but we have to assume that things are going to price out in a normal basis and not an abnormal basis. So we've had not only good economics on our collection business. We've had very good economics on our third-party oil, and that was part of the first quarter, and we hope we can maintain that. So -- but we're not going to guide to something that we don't have long-term data or some backing or background information that makes our budgets up and that's -- so we've just got to -- we've got to take it another quarter and just see how this keeps playing out. And I can say as of right now, it is playing out. So I'm probably under-forecasting if the market continues to work in the direction it's going.

Okay. Great. That's helpful. And you also mentioned that you're kind of not quite back at pre-pandemic levels on the base oil. Where would you say you are? Are we about 70% of pre-pandemic? Are we 80? Can you give maybe a little bit of color around that?

No. Pricing -- I guess pricing is in the ZIP code of pre-pandemic levels for base oil?

It's a little bit higher.

It's a little bit higher. So I wouldn't say we're behind on base oil as far as pre-pandemic levels. I think the pandemic actually caused base oil prices and margins on base oil to go up. So that's a -- that was a silver lining with the pandemic, where there's a shortage of BGO, in turn, a shortage of base oil and a higher price as a cause of that. So yes, as far as sale price for our marine fuel at Marrero, maybe that's what you're referring to. The answer is yes. We're still not at pre-pandemic levels. So maybe that was the question or intent. So the margins between those 2 refineries, for Marrero, we're up, I guess, Chris, about 13% or 14% year-over-year?

Yes.

And around 25% for the base oil business at Heartland. So a lot of that is feed-related. And with base oil, it's probably more base oil-related. So -- at Heartland. So does that help, Brian?

Yes. That is helpful. But I guess, connected to that, just kind of on the volume base, where do you feel volumes are now versus pre-pandemic? Are those also recovered almost equal? Or are they still lagging?

Yes. I think we ran those plants at full throttle. So the volumes, you're not going to get any more through the refineries than what we've done. And if we didn't have the turnarounds, we would have those same volumes again. The plants are running extremely well. And so no complaints at all as far as our team's performance on the refining side.

Okay. And then on the Marrero, the IMO 2020, can you just maybe give some color on what is that demand looking like kind of going forward? I mean is that marine fuel still ramping up as the recovery happens? Is there really more room to increase volumes on those sales? Or is that really maxed out as well?

Yes. I mean you're maxed out on volumes because of the refining capacity, not from the demand from our bunker contract that we have with Bunker One. Their volumes are definitely off, as the bunker market is. And fortunately, we had an agreement and a good partner to offtake everything that they committed to offtake, which they have. So we've never been long on our product sales or production because of the offtake agreement that we've had with Bunker One.

Okay. And then last one for me. Do you have any color maybe on weather disruptions in first quarter 2021 and how big or how much of an impact that had on EBITDA or sales?

Yes. I think that's a good question, because we didn't mention anything in our comments because I think a lot of people were tired of hearing about weather issues and unforeseen issues that we faced over the last couple of years and even last summer with the hurricanes. We did not have to bring that to the call. But we did suffer significant collection impact in the Gulf. As far as our collection operations, we probably lost a week of production that we'll never gain back, which speaks again to the performance of our collection business, because they overcame that with just new growth. And I guess we materially were impacted 500,000, 600,000 gallons across the business, of collections and downtime. It'd be like doing a big 5, 6 day turnaround on our whole collection operation.

There are no more questions in queue.

Okay. Well, thank you, everyone, for joining us today. This concludes our Q1 2021 earnings call. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.