Q4 2023 Vertex Energy Inc Earnings Call

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Jeanne: Good morning. My name is Jeanne, and I will be your conference operator today. I would like to welcome you to the Vertex Energy Inc. fourth quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.

Good morning, My name is Jamie and I will be your conference operator today.

I would like to welcome you to the vertex Energy Inc.

Quarter, 'twenty 'twenty earnings conference call.

All lines have been placed on mute to prevent any background noise.

Jeanne: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to John Ragazzino. You may begin your presentation. Thank you. Good morning, and welcome to Vertex Energy's fourth quarter and full year 2023 results conference call. On the call today are Chairman and CEO Ben Cowart, Chief Financial Officer Chris Carlson, Chief Operating Officer James Raine, Chief Strategy Officer Alvaro Ruiz, and Chief Commercial Officer Doug Hawk. I want 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 storied-looking statements are based on management's current expectations and beliefs, actual results may differ materially.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question Press Star one again.

Thank you.

I would now like to turn the conference over to John ran Casino you may begin your conference.

Thank you.

Good morning, and welcome to vertex Energy's fourth quarter and full year 2023 results conference call on the call today are chairman and CEO, Ben Cowart, Chief Financial Officer, Chris Carlson.

<unk> operating officer, James Ragan, Chief Strategy Officer, Albert Louise and Chief Commercial Officer, Doug Haugh.

Want 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.

John Ragazzino: For discussion of some of the risk factors that could cause actual results to differ, please refer to the risk factor 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 and in the press release issued today. Today's call will begin with remarks from Ben Cowart, followed by an operational review from James Rain, a financial review from Chris Carlson, and a review of our commercial strategy from Doug. At the conclusion of these prepared remarks, we'll open the line for questions. With that, I'll turn the call over to Ben.

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 <unk>.

Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call and on the press release issued today.

Today's call will begin with remarks from Ben Cowart.

I would buy an operational review from James Ray a financial review from Chris Carlson.

In a review of our commercial strategy by Doug Haugh.

At the conclusion of these prepared remarks, we'll open the line for questions with that I'll turn the call over to Ben.

Ben Cowart: Thank you, John, and good morning to those joining us on the call today. 2023 was a year marked by significant volatility in the refining and renewable sectors. This instability was driven by several factors, including geopolitical tensions that affected crude oil and products prices.

Thank you John and good morning to those joining us on the call today.

2023 was a year marked by significant volatility in the refining and renewable sectors.

This instability was driven by several factors, including geopolitical tensions that affected crude oil and products pricing.

Ben Cowart: Additionally, shifting supply and demand balances had a profound impact on renewable credit values and lagging feedstock costs. In the midst of these fluctuations, 2023 also marked a significant shift in the evolution and growth of Vertex Energy as a company. Throughout the year, our focus was on launching a renewable business and optimizing our feedstock strategy following the construction and startup of the renewable diesel unit at the Mobile Refinery. In addition, we have expanded our logistics footprint in Mobile through our marine fuels and logistics operations and established our trading and supply division, creating significant opportunities to vertically integrate the broader business and capture more of the value chain along the way.

Currently shifting supply and demand balances had a profound impact on renewable credit values and lagging feedstock cost in the midst of these fluctuations 2023 also marked a significant shift in evolution and growth of vertex energy as a company.

Throughout the year, our focus was on launching our renewable business and optimizing our feedstock strategy. Following the construction and startup of the renewable diesel unit at the mobile refiner.

In addition, we have expanded our logistics footprint in mobile through our marine fuels and logistics operations and establish our trading and supply the Beijing, creating significant opportunities to vertically integrate the broader business and capture more of the value chain along the way.

Ben Cowart: Since the Mobile Refinery purchase, we have invested roughly $260 million of new cash into the renewable diesel business to date, including fixed assets, the cash portion of working capital for inventory, and funded losses through the year-end 2020 budget. We have grown our corporate overhead to support this growth and bring in the talent needed to drive progress towards our overall goal as a leading energy transition company. Given our accomplishments in the startup and the development of these initiatives, we believe we are well positioned to refine our strategy, concentrating now on cash management, cost reduction, and enhanced profit margin. On the call today, the team and I plan to update you on the financial and operating results for the fourth quarter and full year 2023. But I want to start by thanking my team.

So mobile refinery purchase we have invested roughly $260 million of new cash into the renewable diesel business today, including fixed assets. The cash portion of working capital for inventory and funded losses through the year end 2023.

We have grown our corporate overhead to support this growth and bring in the talent needed to drive progress towards our overall goal as a leading energy transmission company.

Given our accomplishments in the startup and the development of these initiatives. We believe we are well positioned to refine our strategy concentrating now on cash management cost reduction and enhanced profit margins.

On the call today, the team and I plan to update you on the financial and operating results for the fourth quarter and full year 2023.

I wanted to start by thanking my team.

Ben Cowart: All the employees listening to the call today for the good work they have accomplished throughout the year. As James will note shortly. We not only got a lot done, but we did it safely, which is the most important measure. Before I hand the call off to James, I know many of you are eager to get an update on the ongoing process underway with Bank of America. As we've communicated, we are evaluating various alternative strategies to free up some liquidity and strengthen our current balance sheet position. We are continuing to work the process. We're encouraged by the progress made, and I hope to bring this to resolution sometime during Q2 of this year. We fully intend to update the market once we have tangible information to share. With that, I'll now hand the call over to Joe. Thank you, Ben. Good morning, everyone.

All of the employees listening to the call today for the good work they have accomplished throughout the year.

As James will know shortly.

We not only got a lot done, but we did it safely which is the most important measure of all.

Before I hand, the call off to James.

Many of you are eager to get an update on the ongoing process underway with bank of America.

As we've communicated we are evaluating various alternative strategies to free up some liquidity and strengthen our current balance sheet position.

We are continuing to work the process.

We're encouraged by the progress made and I hope to bring this to resolution sometime during Q2 of this year, we fully intend to update the market. Once we have tangible information to share with that I'll now hand, the call over to James.

Thank you Dan Good morning, everyone I will start as always with a report on health safety and environmental performance.

Joe: I will start, as always, with our report on health, safety, and environmental performance. The fourth quarter of 2023 was another clean quarter with zero ocean recordable injuries. However, we did have four minor environmental noncompliances at the Mobile site associated with the planned power outage. Additionally, Mobile saw zero process safety events, continuing its streak of outstanding EH&S performance at the site.

Fourth quarter of 2023, it was another clean quarter with zero Osha recordable injuries.

We did have four minor environmental noncompliance is that the mobile site associated with the planned power outage.

Additionally, mobile salt zero process safety events continued its streak of outstanding EHS performance at the site for.

Joe: For the full year 2023, our environmental, health, and safety performance reflects a great achievement by our team, which I'm extremely proud of. After acquiring the Mobile Facility, the team was immediately put to the test as our conversion of the RD facility was a monumental task as the site executed a project with multiple times as many boots on the ground as normal for the better part of a year, throughout this period of unprecedented business with hundreds of unfamiliar faces on the site. The fact that the team was able to successfully maintain daily operations without serious injury or environmental damage and no disruption to our surrounding neighbors and community demonstrates the diligence, skills, and commitment to quality of each of our employees. I'm extremely proud of our legacy business also, as that group saw a reduction of 90% year over year in OSHA recordable injuries. I'm proud of our employees at every location for continually prioritizing the safety-first mentality of our entire organization, and I must say thank you to all of our dedicated employees and contractors.

For the full year 2023, our environmental health and safety performance reflects a great achievement by our team, which I'm extremely proud of.

After acquiring the mobile facility. The team was immediately put to test as our conversion of the R&D facility was a monumental task as the site executed a project with multiple times as many boots on the ground as normal for the better part of the year.

Throughout this period of unprecedented business with hundreds of unfamiliar faces on the site.

Fact that the team was able to successfully maintain daily operations without serious injury or environmental damage and no disruption to our surrounding neighbors and communities demonstrates the diligence skill and commitment to quality of each of our employees.

Im extremely proud of our legacy business also is that group saw a reduction of 90% year over year, an osha recordable.

I am proud of our employees at every location and are continually to prioritize the safety first mentality of our entire organization and I must say, thank you to all of our dedicated employees and contractors the effort and care for each other seen across the entire business is a testament to the employees and contract partners that work within our facilities.

Joe: The effort and care for each other seen across the entire business is a testament to the employees and contract partners that work within our facility. Our team at the Mobile site demonstrated a strong operational performance of the conventional facility during the quarter with average throughput volumes of 67,083 barrels per day for capacity utilization of 89%, consistent with the updated guidance of 67,000 barrels per day in January. The lower volumes reflect the combined impact of a strategic curtailment of throughput and the effect of deteriorating market conditions during the quarter, as well as previously disclosed downtime to proactively replace an electrical transformer.

Our team at the mobile site demonstrates a strong operational performance of the conventional facility during the quarter, which with average throughput volumes of 67083 barrels per day for capacity utilization of 89% consistent with the updated guidance of 67000 barrels per day in January.

The lower volumes reflect the combined impact of a strategic curtailment of throughput in light of deteriorating market conditions during the quarter as well as previously disclosed downtime to proactively replace and electrical transformer.

Total opex per barrel for the fourth quarter was in line with our guidance at $3 83 per barrel and reflects.

Joe: Total OPEX per barrel for the fourth quarter was in line with our guidance at $3.83 per barrel and reflects Thank you. Our conventional fuels gross margin per barrel during the quarter was $4.79, reflective of the challenging market conditions encountered in the conventional fuels markets during the quarter. At the onset of the fourth quarter, market prices for finished motor fuels, including gasoline and diesel, began a sharp correction and continued this downward trend throughout the first two months of the quarter before finally reversing course in early December. The weakness in fuel prices for much of the quarter had a significant negative impact on our fuel gross margin per barrel for our conventional fuels.

Increasing cost efficiencies gained from smooth operation, which more than offset the inflationary impact of lower throughput volumes on our cost per barrel basis.

Our conventional fuels gross margin per barrel during the quarter was $4 79.

Collective of the challenging market conditions encountered in the conventional fuels markets during the quarter.

At the onset of the fourth quarter market prices for finished motor fuels, including gasoline and diesel began a sharp correction and continued this downward trend throughout the first two months of the quarter before finally reversing course in early December.

Weakness in fuel prices for much of the quarter had significant negative impact on our fuel gross margin per barrel in our conventional fuels business.

Joe: However, just as quickly as prices began a downward trend at the beginning of the quarter, they have steadily rebounded since early December and through most of the first quarter of 2024. Our finished products, such as gasoline, diesel, and jet fuel, accounted for 66% of our total product yield during the fourth quarter of 2023. This was in line with our guidance and reflecting continued focus on facility-wide yield optimization, as we've previously described. Now, turning to our Renewable Fuels business. Vertex's renewable diesel plant operated smoothly, generating total renewable fuels gross margin per barrel of $12.11 for the quarter. Our fuel gross margin for fourth quarter 2020 included $6.1 million of benefit attributed to production volumes from the second and third quarters. Adjusting for the third quarter LCFS credit, our fuel gross margin per barrel for the fourth quarter was approximately a negative $4.78.

However, just as quickly as prices began the downward trend at the beginning of the quarter base have steadily rebounded since early December and through most of the first quarter of 2024.

Our finished products such as gasoline diesel and jet fuel accounted for 66% of our total product yield during the fourth quarter 2023. This was in line with our guidance and reflecting continued focus on facility wide yield optimization as we've previously described.

Now turning to our renewable fuels business.

Our Texas renewable diesel plant operated smoothly generating total renewable fuels gross margin per barrel of $12 11 for the quarter.

Our fuel gross margin for fourth quarter 2023 included $6 $1 million of benefit attributed to production volumes from the second third quarters.

Adjusting for the third quarter L. CFS credit our fuel gross margin per barrel for the fourth quarter was approximately a negative $4 78.

Our renewable throughput volumes averaged 3926 barrels per day for capacity utilization of 49% in line with our recently updated guidance.

As Chris will detail in a moment, our crude oil throughput projections for the first quarter are expected to be between 60% and 63000 barrels per day, we will have a planned small turnaround of one of the re formers in a pitstop of one of the crude units during March as we prepare the plants are generally higher margin periods in the second third quarter ahead of gasoline.

Joe: Our renewable throughput volumes averaged 3,926 barrels per day for capacity utilization of 49% in line with our recently updated guidance. As Chris will detail in a moment, our crude oil throughput projections for the first quarter are expected to be between 60,000 and 63,000 barrels per day. We'll have a planned small turnaround of one of the reformers and a pit stop of one of the crude units during March as we prepare the plant for generally higher margin periods in the second and third quarter ahead of gasoline demand during the dry season. We have seen margins increase in the first quarter and have accelerated crew throughput volumes in conjunction with the improved margin environment. Looking out to the remainder of 2024, we continue to make good progress on the development of phase two of our RD conversion project, as well as the work necessary to qualify additional feedstock.

Demand during the driving season.

We have seen margins increase in the first quarter and have accelerated crude throughput volumes in conjunction with the improved margin environment.

Looking out to the remainder of 2024, we continue to make good progress on the development of phase two of our Rd conversion project as well as the work necessary to qualify additional feedstocks.

We continue to believe in our expansion of 14000 barrels a day is on track for completion in the first quarter of 2025.

Previously communicated.

The Rd business continues to be challenging in 2024, as we use this time to develop capabilities and operating the unit as well as understand the differences with various feedstock slates, which Doug will expand on in a moment.

Joe: We continue to believe that our expansion to 14,000 barrels a day is on track for completion in the first quarter of 2025, as we've previously communicated. The RD business continues to be challenging in 2024, as we use this time to develop capabilities and operate in the unit, as well as understand the differences with various feedstock slates, which Doug Hawkins will expand on in a moment. Moving quickly over to our legacy business, operational performance in 2023 for Morera was outstanding, as they saw a 4.4% capacity improvement year over year. And we also saw a 23% increase in collection volumes in our collections business through our UMO collection operation. Both of those groups have had excellent 20.

Moving quickly over to our legacy business operational performance and 2023 for our Aero was outstanding as they saw a four 4% capacity improvement year over year.

And we also saw a 23% increase in collection volumes and our collections business through are you an Moe collection operation both of those groups have had excellent 2020.

I will now turn the call over to Chief Financial Officer, Chris Carlson for a review of the company's financial results and additional detail regarding our financial and operating outlook for the first quarter of 2024.

Thank you James and welcome to those joining us on the call today.

Before reviewing our detailed financial results for the fourth quarter and full year 2023, I want to reiterate our continued focus on the improvement of our balance sheet.

Elimination of our high interest term loan and convertible notes has been a key component of our overall strategy. Following our transformational acquisition of the mobile facility in 2022.

Chris Carlson: I will now turn the call over to Chief Financial Officer Chris Carlson for a review of the company's financial results and additional detail regarding our financial and operating outlook for the first quarter of 2025. Thank you, James, and welcome to those joining us on the call today. Before reviewing our detailed financial results for the fourth quarter and full year 2023, I want to reiterate our continued focus on the improvement of our balance. Elimination of our high-interest term loan and convertible notes has been a key component of our overall strategy following our transformational acquisition of the Mobile Facility. 2020. Over the course of 2023, we made notable progress towards this goal with the announcement of our private exchange of approximately $80 million of our 6.25% convertible. We expect to continue our pursuit of this strategy, utilizing the most efficient tools accessible to us along the way. Turning now to our financial results. Vertex reported a net loss attributable to the company of $63.9 million for the fourth quarter and $71.5 million for the full year 2021.

Over the course of 2023, we made notable progress towards this goal with the announcement of our private exchange of approximately $80 million of our six 5% convertible notes due 2027.

We expect to continue our pursuit of this strategy.

Utilizing the most efficient tools accessible to us along this path.

Turning now to our financial results for.

Vertex reported net loss attributable to the company of $63 9 million for the fourth quarter and $71 5 million for the full year 2023.

This compares to $44 4 million and $4 8 million reported in the fourth quarter and full year 2022, respectively.

Total adjusted EBITDA loss of $35 1 million in the fourth quarter and $17 1 million for the full year 2023, compared to $75 2 million and $161 million in the prior year period, respectively.

During the quarter, we recorded operating cash flow before changes in working capital of negative $43 6 million.

Total capital expenditures for the fourth quarter 2023 were $11 7 million, 33% below our prior guidance issued on November seven reflecting a deliberate preservation of capital achieved via a deferral of certain discretionary capital expenditures. This primarily includes a re.

Chris Carlson: This compares to 44.4 million and 4.8 million recorded in the fourth quarter and full year 2022, respectively. Total adjusted EBITDA loss of $35.1 million in the fourth quarter and $17.1 million for the full year 2023, compared to $75.2 million and $161 million in the prior year period, respectively. Here in this quarter, we recorded operating cash flow before changes in working capital of negative 43.6%.

Alignment of planned capital expenses for phase two of the renewable diesel project with the external timelines.

The deferred timing of these phase III expenditures has not directly impacted the project schedule.

Turning to the balance sheet.

As of December 31, 2000, 2030, the company had total cash and equivalents, including restricted cash of $80 6 million versus $79 3 million at the end of the prior quarter.

Chris Carlson: Total capital expenditures for the fourth quarter of 2023 were $11.7 million, 33% below our prior guidance issued on November 7, reflecting a deliberate preservation of capital achieved via a deferral of certain discretionary capital expenses. This primarily includes a realignment of planned capital expenses for Phase 2 of the Renewable Diesel Project with external funding. The deferred timing of these Phase 2 expenditures has not directly impacted the project's balance. As of December 31, 2023, the company had total cash and equivalents, including restricted cash of $80.6 million versus $79.3 million at the end of the prior quarter. Vertex had total net debt outstanding of $205.5 million at the end of the fourth quarter, including lease obligations of $68.6 million.

<unk> total net debt outstanding of $205 5 million at the end of the fourth quarter, including lease obligations of $68 6 million, implying a net debt to trailing 12 month adjusted EBITDA ratio of 12 times as of December 31, 2023.

As previously announced on January <unk> 2020 forward, we reached an agreement with our existing group of lenders to modify certain terms and conditions of the term loan agreement.

The amended term loan provides for an incremental $50 million in borrowings.

Full amount of which was borrowed upon closing on December 29 2023.

And therefore reflected in our year end cash position of $86 million.

During a period of rapidly eroding fuels margins encountered in the fourth quarter, we took the opportunity to shore up the balance sheet with additional cash provided by the amendment in order to support adequate financial flexibility through the completion of our ongoing process with bank of America.

Chris Carlson: Implying a net debt to trailing 12-month adjusted EBITDA ratio of 12 times as of December 31, 2020. As previously announced, on January 2nd, 2021... We reached an agreement with our existing group of lenders to modify certain terms and conditions of the term loan agreement. The amended term loan provides for an incremental $50 million in borrowings.

Aimed at evaluating strategic opportunities.

Relative to the other tools available in the market to us at the time, we maintain our view that the term loan amendment presented the most efficient means of achieving our goal in the short term after considering several alternatives.

We continuously monitor current market conditions, and assess our expected cash generation and liquidity needs against our available cash position using the current forward crack spreads in the market.

Looking to the first quarter of 2020 forward, we anticipate total conventional throughput volumes at mobile to be between 60060 3000 barrels per day.

Chris Carlson: The full amount of which was borrowed upon closing on December 29, 2023 and therefore reflected in our year-end cash position of $80.6 million. During a period of rapidly eroding fuels margins encountered in the fourth quarter, we took the opportunity to shore up the balance sheet with additional cash provided by the amendment in order to support adequate financial flexibility through the completion of our ongoing process with Bank of America, aimed at evaluating strategic opportunities. Relative to the other tools available in the market to us at the time, we maintain our view that the Term Loan Amendment presented the most efficient means of achieving our goal in the short term after considering several alternatives.

Our expected yield of conventional products is expected to consist of between 64% to 68% high value finished products such as gasoline diesel and jet fuel with the balance in intermediate and other products such as <unk>.

Other renewable side of the business, we expect a total throughput of renewable feedstocks to average between three and.

And 5000 barrels per day.

Our approximately 38% to 63% utilization on our total phase one production capacity of 8000 barrels per day.

We anticipate an efficient total production yield a renewable diesel between 96% to 98% for the first quarter as well.

Chris Carlson: We continuously monitor current market conditions and assess our expected cash generation and liquidity needs against our available cash position using the current forward crack spreads in the market. Looking to the first quarter of 2024, we anticipate total conventional throughput volumes at Mobile to be between 60,000 and 63,000 barrels per day. Our expected yield of conventional products is expected to consist of between 64% to 68% of high-value finished products, such as gasoline, diesel, and jet fuel, with a balance in intermediate and other products such as BGO. On the renewable side of the business, we expect a total throughput of renewable feedstock to average between 3,000 and 5,000 barrels per day, for approximately 38% to 63% utilization on our total phase one production capacity of 8,000 barrels We anticipate an efficient total production yield of renewable diesel between 96 and 98% for the first quarter of the year. Anticipated OPEX per barrel, encompassing both conventional and renewable business, on a fully consolidated basis is projected to range between $459 and $495 for the quarter.

Anticipated opex per barrel encompassing both conventional and renewables businesses on a fully consolidated basis is projected to range between $4 59, and $4 95 for the quarter.

We anticipate total capital expenditures for the first quarter to be between 20 million to $25 million.

As of the fourth quarter 2023, vertex has entered into fixed price swap contracts covering approximately 40% of expected diesel and distillate production for the first quarter of 2024 at a weighted average swap price of $28 39 per barrel.

I'd now like to turn the call to Chief commercial Officer, Doug hub.

Thanks, Chris.

First I want to share that our feedstock optimization strategy has progressed according to plan.

As expected our temporary L. CFS pathway approval last year resulted in us receiving lcs credits for imports to California, producing a $9 $6 million benefit.

We were also able to complete our run and the data collection required to support our provisional <unk> application for four vertex specific pathways, covering soy canola and tallow in DCF.

This application has been submitted to card and we expect that we will receive <unk> credits based on these improved Ci scores for imports into California during 2024, which will improve our per gallon credit values as compared to the temporary ACI values received last year.

With our provisional pathway application filed for our first for feedstocks, we have shifted our focus to completing additional 90 day runs of lower Ci feeds specifically Hugo in poultry fat.

Doug Hogg: We anticipate total capital expenditures for the first quarter to be between $20 million and $25 million. As of the fourth quarter of 2023, Vertex has entered into fixed price swap contracts covering approximately 40% of expected diesel and distillate production for the first quarter of 2023, at a weighted average swap price of $28.39 per barrel. I'd now like to turn the call to Chief Commercial Officer Doug Hogg. Thank you, Chris.

These fees represent not only improved ci values, but also outright lower cost.

We started aggregating the inventory needed to support these zones.

To complete the runs for these additional feeds during the second quarter.

Protocol families of feedstocks the team has been able to double our supplier base over the last quarter.

And the market continues to provide tremendous support for RC facility.

Logistically, we have continued to receive supply primarily via barge and rail. Both the addition of <unk> and poultry fat to our supply base is added truck deliveries to our logistics mix.

Doug Hogg: First, I want to share that our feedstock optimization strategy has progressed according to plan. As expected, our temporary LCFS pathway approval last year resulted in us receiving LCF credits for imports to California, producing a $9.6 million benefit. We were also able to complete our runs and the data collection required to support our provisional LCFS application, four vertex-specific pathways covering soy, canola, tallow, and DC

We have started to rationalize our feedstock inventories of each grade as we build confidence in each supply chain and any supplier.

This optimization allows us to create more flexible blending schedules and having multimodal delivery capacity across dedicated tanks for each class of feedstock allows us to capture price changes quickly as volatility in feedstock pricing has continued to be very material.

Our primary message around feedstocks as one of abundant and flexible supply from our portfolio of suppliers that have been reliable and support.

Doug Hogg: This application has been submitted to CARB, and we expect that we will receive LCFS credits based on these improved CI scores for imports into California during 2024, which will improve our per-gallon credit values as compared to the temporary CI values received last year. With our provisional pathway application filed for our first four feedstocks, we have shifted our focus to completing additional 90-day runs of lower CI feeds, specifically y These feeds represent not only improved CI values but also outright lower costs.

We appreciate all of them working with us as we have pursued each of these pathways and continued to build our yield curves and carbon intensity data.

Through all these changes in feedstocks run rates and hydrogen uptake rates across a wide range of blend. Our plan has operated reliably and maintained high conversion rates.

This reflects both on the design engineering construction quality, we have now seen evident and plant performance.

But also just as importantly on the commitment skill and cohesive teamwork with which our trading operations and engineering teams have executed this demanding plan.

In conjunction with building, a new business and renewable diesel production, we continue to build out our supply trading risk management and commercial marketing capabilities.

Doug Hogg: We've started aggregating the inventory needed to support these runs, and we expect to complete the runs for these additional feeds during the second quarter. Across all families of feedstocks, the team has been able to double our supplier base over the last, and the market continues to provide tremendous support for our facility. Logistically, we've continued to receive supply, primarily via barge and rail. Both the addition of Yucca and poultry fat to our supply base have added truck deliveries to our logistics.

These capabilities along with our continued development of internal logistics barge and commercial delivery capabilities.

And us to continue to reduce cost and secure improved net backs of margins for our conventional refineries and our renewables business.

With our initial offtake contracts starting to come up for negotiation.

We could begin now to use these supply trading and commercial capabilities across all of our products to improve our net backs for our production.

We are already seeing benefits by leveraging our internal capabilities to bring a portion of our marrero production to where we are blending capacity in mobile to produce a higher value finished products.

Doug Hogg: We've started to rationalize our feedstock inventories of each grade as we build confidence in each supply chain and in each supplier. This optimization allows us to create more flexible blending schedules, and having multimodal delivery capacity across dedicated tanks for each class of feedstock allows us to capture price changes quickly, as volatility in feedstock pricing has continued to be very material. Our primary message around feedstocks is one of abundant and flexible supply from a portfolio of suppliers that have been reliable and supportive. We appreciate all of them working with us as we have pursued each of these pathways and continue to build our yield curves and carbon intensity data. Through all these changes in feedstocks, run rates, and hydrogen uptake rates across a wide range of blends, our plant has operated reliably and maintained high conversion rates.

<unk> also supported the launch of our marine fueling business that allows us to capture retail margin on those barrels versus being traded in the bulk wholesale markets.

We're still in the early stages, but this is the type of work we are doing to bring continuous improvement on net backs and build a reliable customer base around the business that maximizes the value of all of our products.

Doug once again, our team is doing a great job of managing our operations, reducing risks and executing the expansion of our business capabilities as we navigate the first quarter of 2024, we anticipate facing similar challenges and market fluctuations experienced in 2023, our priorities will continue.

To be safety and reliability with a continued focus on cash management cost reduction and capture an enhanced margin opportunities I wish to reiterate to everyone. On this call that our strategic decision to acquire them over refinery was driven by the significant long term potential we saw and continue to see in the renewable sector.

Doug Hogg: This reflects both the design, engineering, and construction quality we have now seen evident in plant performance, but also just as importantly, the commitment, skill, and cohesive teamwork with which our trading operations and engineering teams have executed this demanding task, in conjunction with building a new business in renewable diesel production. We've continued to build out our supply, trading, risk management, and commercial marketing capabilities. These capabilities, along with our continued development of internal logistics, barge, and commercial delivery capabilities, position us to continue to reduce costs and secure improved netbacks and margins for our conventional refineries and our renewables business, while our initial off-date contracts are starting to come up for negotiation. We can begin now to use these supply, trading, and commercial capabilities across all of our products to improve our netbacks for our production. We have already seen benefits by leveraging our internal capabilities to bring a portion of our Morero production to where we have blending capacity in Mobile to produce a higher-value finished product.

Our substantial cash investments in renewables are testament to our confidence in this decision. The renewable diesel project was launched with remarkable speed and cost effectiveness yet it represents a multiyear endeavor within are still involved in market.

Reflecting on the journey.

2022 was about establishing a foundation 2023 about building the structure and 2024 is focused on advancing this framework towards our 2025 goal.

We expect our transformation into a leading energy transition company to yield results that better reflect the value of this business until then we have work to do and we look forward to keeping you updated on the exciting milestones we have planned.

Thank you I will turn this call now over to the operator for questions.

Okay.

If you would like to ask a question press star followed by the number one on your telephone keypad.

Your first question comes from the line of Eric Stine with Craig Hallum. Your line is open.

Okay.

Hey, good morning, Eric.

Okay.

Okay.

It appears Eric <unk> line, how does.

Rob.

This question comes from the line of Donovan Schafer with Northland capital markets.

Doug Hogg: This product also supported the launch of our marine fueling business that allows us to capture retail margins on those barrels versus being traded in the bulk wholesale market. We're still in the early stages, but this is the type of work we are doing to bring continuous improvement on netbacks and build a reliable customer base around the business that maximizes the value of all of our products. Thank you, Doug.

Hey, good morning, guys. Thanks for taking the questions. So.

I wanted to follow up with Doug's comment during the prepared remarks that the.

Yes.

In the release it said you have.

Successful sort of completed the runs on the <unk> feedstocks for renewable vehicles and then all the Cros that he is out of the eyes and sort of submitting everything and that that should come back.

Ben Cowart: Once again, our team is doing a great job of managing our operations, reducing risk, and executing the expansion of our business capability. As we navigate the first quarter of 2024, we anticipate facing similar challenges and market fluctuations experienced in 2020. Our priorities will continue to be safety and reliability, with a continued focus on cash management, cost reduction, and capturing enhanced margin. I wish to reiterate to everyone on this call that our strategic decision to acquire the Mobile Refinery was driven by the significant long-term potential we saw and continue to see in the renewable sector. Our substantial cash investments in renewables are a testament to our confidence in this decision. The Renewables Diesel Project was launched with remarkable speed and cost-effectiveness.

Expect sometime in 2020 for getting the.

The benefit showing up sort of in the financials or recognition on that from the improved Ci scores.

Is there do you have a sense at all of whether Thats kind of like first half of 'twenty for second half kind of earlier or later.

Some kind of risk or potential it gets pushed into 2025.

No.

Bureaucratically things can have a wide range of variation between agencies and whatnot and how quickly things get turned around so.

Any color there would be helpful.

Good question, yes.

Yeah, our expectation is that.

You should.

Half the new scores in place for second quarter production.

Possibly first quarter, although thats.

Again, we'd have to have.

Outperformance on the part of the regulator, which.

To their credit we've had.

Good responses in relationship in.

They have been supportive throughout the process. So.

Now they are engaged in.

Supportive in moving things SaaS, we can we've also taken some steps to.

Ben Cowart: Yet it represents a multi-year endeavor within a still-evolving market. Reflecting on the journey. 2022 was about establishing our foundation, 2023 about building the structure, and 2024 is focused on advancing this framework towards our 2025 goal, by which time we expect our transformation into a leading energy transition company to yield results that better reflect the value of. Until then, we have work to do, and we look forward to keeping you updated on the exciting milestones we have planned ahead. Thank you. I will turn this call now over to the operator for questions. If you would like to ask a question, press star followed by the number one on your telephone keypad.

Get the audited phase of the submission.

Kicked off early so we think that could that could reduce the cycle time, so but in short no. We expect some benefit from that in the first half not perhaps all of the first half but.

And we're hopeful there, but we'd certainly expect to be fully covered under those pathways for the second half of 'twenty.

Okay and then.

Kind of talking about the cost side of the equation getting into.

Some nuance things and whether or not these can yes.

The material or move the needle I believe in the fourth quarter. There was some impact from the Panama Canal.

As you can kind of quantify or talk about that and maybe the transportation cost dynamic in general the ability to switch to.

Rail or whatever it is.

Operator: Your first question comes from the line of Eric Stine with Craig Hellam. Your line is open. Hey, good morning, Eric.

With the renewable diesel that's got to get to California, you don't really have too much option in terms of where you send the product and so just how transportation costs play into that and the other one would be the natural gas prices are so low and I don't know if the hydrogen.

Operator: It appears Eric's line has dropped. This question comes from the line of Donovan Shaffer with Northland Capital Markets. Hey, good morning, guys.

Donovan Shaffer: Thanks for taking the questions. So, I want to follow up on Doug's comment or saying during the prepared remarks that, you know, the CI, you, and I think in the release, it said you have successfully sort of completed the runs on the 4 feedstocks for renewable diesels. And then, you know, all across the T is out of the eyes and sort of submitting everything and that it should come back.

You get to.

And the hydro cracker for the renewable diesel.

And a lot of it's coming from natural gas.

That can give impacted by natural gas prices and those of course, you're super low right. Now. So I don't know if that gives kind of a tailwind or helps there at all or if thats just to de minimis of of <unk>.

<unk> to matter, so those kind of two things transportation of natural gas.

Doug Hogg: You know, you expect sometime in 2024 to get the benefit showing up sort of in the financials or recognition on that from the improved CI scores. Is there, do you have a sense at all of whether that's kind of like the first half of 24, second half, kind of earlier or later? Is there some kind of risk or potential that gets pushed into 2025? I just know, bureaucratically, things can have a wide range of variation between agencies and whatnot and how quickly things get turned around. So any kind of that would be helpful.

I'll take transportation and I'll hand, it James for the natural gas question.

Yes.

The fourth quarter transportation cost was.

Very very <unk>.

In terms of the Panama Canal impact I think it was on the order of $6 million.

<unk>.

Above.

Our normal rates, which we you can look at the third quarter numbers and sort of interpret those but.

<unk>.

We really and it was a kind of a crazy situation, where you send the ship.

You participate in a live auction once you're there are on your way there and you don't really know what the cost is going to be until you get through.

So kind of a chaotic.

Mess if you would.

We've since fix that for the first six months of this year.

Doug Hogg: Good question, Amit. Yeah, our expectation is that we should have the new scores in place for second quarter production, possibly first quarter, although that's a, Again, we'd have to have kind of outperformance on the part of the regulator. You know, to their credit, we've had good responses and relationships, and they've been supportive throughout the process; now they're engaged. Manav Gupta, Noah Kaye, Eric Stine, Brian Butler, Vertex Energy, get the audit phase of Eric Stine, Manav Gupta, Noah Kaye, Eric Stine, Brian Butler, Vertex Energy, some benefit from that in the first half, not perhaps all of Okay. And then kind of talking about the cost side of the equation, getting into some nuanced things and whether or not these can be material or move the needle.

<unk>.

With a.

A good trade on the transportation capacity.

Partners.

Confirmed slots or guarantee.

Physicians through the canal that was able to take those costs out.

And they can now has improved operationally so both of those are helping us.

And we don't expect to see those costs in the first or second quarter.

As a result of the repositioning we've done on that transportation. So that's been that's been favorable but it was a tough lesson learned in fourth quarter. We are far from the only wants to experience it and talking to other industry players everybody was up against the same.

Same expense to get through the canal I think they were.

Basically it 40 or 50% throughput rates in terms of shifts per day as compared to normal cells.

It was a pretty big problem.

But again we.

We believe we've rectified that for the first half of this year.

And hopefully all year as things normalize, but we've got good line of sight for the first two quarters on those transportation costs getting back to our normal business case rates.

We counted on.

Okay.

Yeah on natural gas that is indeed, the source of hydrogen for mattress.

Doug Hogg: I believe in the fourth quarter, there were some impacts from the Panama Canal. If you can kind of quantify or talk about that and maybe the transportation cost dynamic in general, you know, the ability to switch to rail or whatever because, you know, with the renewable diesel, that's got to get to California. You don't really have too much of an option in terms of where you send the product.

Unit that we have on site today.

In the future that it'll be about 50% of those.

Yeah.

See going into the hydrogen plant on the larger one that we're currently in construction, but we are seeing in the cheap natural gas, which in turn translates to the price of hydrogen on the energy side.

I don't have an exact number for you, but we are seeing that and really looking at what do we think it's going to happen this year.

Doug Hogg: And so just how transportation costs, www.vertexenergy.com, that can get impacted by natural gas prices, and those, of course, are super low right now. So I don't know if that gives kind of a tail end or helps there at all, or if that's just too de minimis of a difference to matter. So those two kinds of two things, transportation and natural gas.

And in the future, what's going to happen with natural gas.

That indeed is.

As the case, we haven't hedged we have not hedged any of it yes, yes, okay.

Yes.

Yeah, it's pretty it's pretty attractive as current price very attractive.

And actually if I could just squeeze one more on kind of the cash.

Options or flexibility soft there.

In the release for the.

Doug Hogg: Yeah, I'll take transportation and I'll hand it to James for the natural gas question. Yeah, the fourth quarter transportation costs, very, very bad in terms of the Panama Canal impact, are on the order of $6 million. Bye Bye, are normal rates, you know, you can look at the third. But

Upsizing the term loan there is there is a sort of a brief mention of another $25 million sort of may be contemplated in the extension or at least like a framework or something but in there. So you can kind of give an update on like what's the.

Is that like a commitment by the lender in some way or is it.

Doug Hogg: You know, we really, and it was a kind of a crazy situation where you send the ship, participate in a live auction, there, are on your way there, and you don't really know what the cost is. It was kind of a chaotic mess, if you would. We've since fixed that for the first six months of this year. Day, trade on the transportation capacity, partners had, firm slots, or guarantee, was able to take those costs out, and the canal has improved operationally, so both of those are helpful. And we don't expect to see those costs in the first or second year as a result of the repositioning we've done on that. So that's been favorable, but it was a tough lesson to learn. We were far from the only ones to experience it.

Kind of fully sort of discretionary, but you at least have the pieces in place.

Also if you'd consider like marrero refinery or other assets is something you can monetize or.

Lean on in some way to raise cash.

Yes, Jonathan this is Ben.

The.

The change in our.

Loan terms with the with the lending group included an additional 25 million it is subject to their approval.

The club of lenders have been very supportive of the business, obviously from the purchase of the refinery and all the work and investments that we've made so.

We do have that as a as a opportunity to go back to our lenders for additional liquidity.

Doug Hogg: Talking to other industry players, you know, everybody was up for it, same expenses to get through the canal, basically at 40 or and the New York Times. Thank you. Thank you.

Our focus obviously is on the bofa process that.

Really addresses liquidity.

On a much <unk>.

Doug Hogg: But again, we. I believe we've rectified that for the first half of this year and hopefully all year as well. Manav Gupta, Noah Kaye, Eric Stine, Brian Butler, Vertex Energy, back to our normal business case rate. Okay, and you know, natural gas is indeed the source of hydrogen from our Matheson unit that we have on site today.

Picture so.

So that's the <unk>.

The state of the relationship with the lenders so I think thats good.

We stay in close contact with them and they're up to speed on the business as we go forward.

Okay, great. Thank you guys want to take the rest of my questions offline.

Thank you.

James: In the future, that'll be about 50% of the energy going into the hydrogen plant on the larger one that we're currently in construction. But we are seeing, indeed, cheap natural gas, which in turn translates to the price of hydrogen. On the energy side, I don't have an exact number for you, but we are seeing that and really looking at what we think it's going to happen this year and in the future and what's going to happen with natural gas. We have not hedged any of it.

Your next question comes from the line of Eric Stine with Craig Hallum. Your line is open.

Hey, no idea what happened before but ill just jump into it so when thinking about the first quarter.

When thinking about first quarter.

And just the operational outlook.

So you're guiding to lower throughput and I know that the market has improved somewhat and it sounds like you have hedged favorably to an extent. So just curious I mean, it's not a non Q that the market is still very tough.

James: Yeah, great. Okay, good. We might. Yeah, it's pretty attractive.

Chris Carlson: Yeah, that's the current price. Very attractive, indeed. And actually, if I could just squeeze one more on kind of the cash options or flexibility stuff there. In the release for the upsizing of the term loan, there is a sort of brief mention of another $25 million that was sort of maybe contemplated in the extension, or at least like a framework or something put in there. So, if you can kind of give an update on like, what's the... Is that like a commitment by the lender in some way, or is it... kind of fully sort of discretionary, but you at least have the pieces in place. And also, if you'd consider a Marrero refinery or other assets as something you can monetize or lean on in some way to raise cash. Yeah, Donovan, there's been A change in our loan terms with the lending group included an additional $25 million, but it is subject to their approval.

You mentioned, a small turnaround any other color on what's happening in the first quarter would be helpful.

Yes, Hi, Eric This is James really what we're doing in the first quarter.

As we started the year.

Sure.

Hello crude back a little bit because margins have not returned on us yet, but they have and so we entered it in turn raised rates during the month of February.

It did have a little bit of maintenance and.

January that we did and then in March it's really about.

Our reformer turnaround and change in catalysts and doing work there and it's also our planned number one crude unit, where we're going in and doing maintenance on it and cleaning it up and this is our typical twice a year and.

Our point of view and setting this up was we would do this prior to the driving season coming in April May June.

Chris Carlson: The Club of lenders has been very supportive of the business, obviously, from the purchase of the refinery and all the work and investments that we've made. So we do have that as an opportunity to go back to our lenders for additional liquidity. Our focus, obviously, is on the B of A process that really addresses liquidity in a much bigger picture. So that's the state of the relationship with the lender. So I think that's good. And, you know, we stay in close contact with them, and they're up to speed on the business as we go. Okay, great. Thank you, guys. Thanks for asking me my questions offline.

July and that we'd be able to run full rates during that time and not hold the plant back. So that's that's what was behind our thought and Thats our plan.

Do that and run.

<unk> in the future.

Based upon the market conditions, we believe that are coming.

Got it okay.

That makes sense. It's helpful. Maybe just last one for me and then I'll take the rest offline.

When you acquired those.

Utility and then embarked on the R&D plan that you viewed niches that you'd be in an advantageous spot.

From a feedstock perspective, both availability and price I'm curious as you look back is that how it has played out.

Operator: Thank you. Your next question comes from the line of Eric Stine with Craig Hallam. Your line is open.

Eric Andrew Stine: Hey, no idea what happened before, but I'll just jump into it. So, when thinking about the first quarter and just the operational outlook, you're guiding to lower throughput, and I know that the market has improved somewhat, and it sounds like you have hedged favorably to an extent. So just curious, I mean, it's not a nod to that the market is still very tough. You mentioned a small turnaround; any other color on what happened in the first quarter would be helpful. Yeah, this is Eric. This is James.

And just curious.

What kind of mix are you thinking about in terms, Inc finished feedstock versus tolling.

And maybe the economics.

Maybe it doesn't really matter, but just curious on level as well.

Yes, Doug here.

Great question, we've certainly seen.

The advantages we believed were there in the site materialized from our logistics and availability and security of supply standpoint.

Deep roster of suppliers a lot of liquidity across most every great you want.

James: Really, what we're doing in the first quarter, you know, as we started the year, we're holding crude back a little bit because margins had not returned enough yet, but they have. And so we entered, in turn, raised rates during the month of February, did have a little bit of maintenance. In January that we did, and then in March, it's really about a reform or turnaround and us changing catalysts and doing work there as well as our planned number one crude unit where we're going in and doing maintenance on it and cleaning it up. And this is our typical twice a year schedule.

Obviously as we get into the.

The more disparate feeds that arent produced from large integrated suppliers like the yukos coming from small gathers and collectors.

And poultry fat, which is prevalent in the southeast with a lot of them.

Chicken industry around us.

Those take a little bit more work like like I mentioned, we are bringing in trucks now which is we've avoided as long as we could just because there are a lot of handling cost and testing costs on each truck versus a larger railcar.

But we're seeing the prices of those be more than attractive enough to justify that work. So I think when it comes to prices we've seen.

Our basis versus the.

Futures price and everybody can see.

James: And, you know, our point of view in setting this up was we would do this prior to the driving season coming in April, May, June, July, and we'd be able to run full rates during that time and not hold the plant back. So that's what was behind our thinking. That's our plan to do that and run it full in the future, based upon the market conditions we believe are... Got it. Okay. That makes sense. It's helpful. Maybe just the last one for me, and then I'll take the rest offline.

To be coming back in line, where we expected.

We're sort of.

Hard to drop too many conclusions on the late summer Spike is.

I think not only the flat prices went up substantially but the basis really blew out.

We don't have any indication that we were disadvantaged in that regard, but we don't have any evidence that we were particularly advantaged either right. So I mean, I think the whole industry.

Got caught in a pretty strong run up.

But we have seen is the.

Prices are down.

And basis has come back in line that given where we're at and logistically, we're able to take advantage of that very very rapidly.

Eric Andrew Stine: I know when you acquired this Facility and then embarked on the RD plan, you viewed this as you would be in an advantageous spot from a feedstock perspective, both availability and price. Curious, as you look back, has that played out? And just curious, you know, what kind of mix are you thinking about in terms of finished feedstock versus tolling? And maybe, you know, the economics doesn't, maybe it doesn't really matter, but just curious about that as well. Yeah, Doug here.

And we've gotten a lot better at just rationalizing the inventory as I mentioned I.

I think we've been very transparent with folks that.

And there was a lot of.

Angst in industry unit.

Almost every analyst we talked to every investor we talked to you about hey, you're spending all this money youre, starting with brand new unit.

You better make darn sure that you've got inventory in feedstocks to feed it because.

Everybody is worried there wasn't going to be enough to go around obviously.

Doug Hogg: It's a great question. We've certainly seen that the advantages we believed were there in the site materialized from logistics and availability. Security and Supplies. A deep roster of suppliers, a lot of liquidity across most every grade you want. Obviously, as we get into the more disparate feeds that aren't produced from large integrated suppliers like the U.K. and poultry fat, which is prevalent in the South, industry around us. You know, those take a little bit more work.

So we created a lot of inventory headed in.

To start up.

Took us really more the run rates of both quarters to run through all of that feed.

But now as we look at our typical days supply on hand, we're trying to stay.

30 days, Max where before we had a couple of months worth of inventory on hand, which is.

Not where you want to be in terms of lining up your ability to take advantage of price declines quickly and turn that into product and capture that captured the crack. So we're we're much better positioned for that now.

How quickly the feed.

Pricing adjust to account for the decline in the regulatory credits that remains to be seen we're still chasing that right I mean, we've got a rins.

Doug Hogg: And like I mentioned, we are bringing in trucks now. We tried to avoid it as long as we could just because there's a lot of handling costs and testing costs on each truck. But we're seeing the prices of those be more than attractive enough to justify that work. So, you know, I think when it comes to prices, we've seen our basis versus the futures price that everybody can see be coming back in line with where we expected. You know, we're sort of.

<unk> continued to collapse.

Enel CFS isn't helping much it's been stable, but at a very very low level.

And so fees have come down quite quite a lot certainly dramatically from third and fourth quarter.

But they still got room to run in order to create the right margin structure, one needs given that rents have declined faster.

So we feel good about the progress we've made in that regard and certainly very comfortable that we're in a great position from a supply chain standpoint.

Doug Hogg: Hard to draw too many conclusions on the late summer spike. Not only did flat prices go up substantially, but the basis really blew out. We don't have any indication that we were disadvantaged in that regard.

Have access to a broad array of feeds.

Efficient logistics good good modes of transport.

Doug Hogg: We don't have any evidence that we were particularly advantaged either, right? So, I mean, I think the whole thing... got caught in a pretty strong run-up. But we have seen as those prices have been down, and Basis has come back in line that, given where we're at logistically, we're able to take advantage of that very, very rapidly, and we've gotten a lot better at rationalizing the inventory, as I mentioned. You know, I think we've been very transparent with folks. There's a lot of angst in the industry, and almost every analyst we talked to, every investor we talked to said, hey, you're spending all this money, you're starting this brand new unit.

And now a really good opportunity to optimize our storage and terminalling positions to turn quickly.

Try to eliminate as much of that lag impact as we can.

Coming down the price curve on them.

Selling prices.

Okay. That's great. Thank you.

Your next question comes from the line of Noah Kaye with Oppenheimer. Your line is open.

Thanks.

Picking up on the marketing front I think.

Repaired remarks, you mentioned some of the initial offtake contracts.

Coming up for renewal or expiring can you just elaborate on that a little bit and talk about potential pricing and margin capture opportunities.

Yes, so the first the first contracts that we were able to re tender to the market.

Doug Hogg: You know, you better make darn sure that you've got inventory and feedstocks because, you know, everybody's worried there wasn't gonna be enough to go around. So we, you know, we created a lot of inventory headed in. Startup took us really the run rates of both quarters to run through all that. But now, as we look at our typical day's supply on hand, we're trying to stay, 30 Days Max, where before we had, you know, a couple not where you want to be in terms of line. Authority to take action.

We're predominantly jet.

That came up.

This quarter it rolls over April one.

To a new contract so.

So we took that to market.

Fourth quarter last year.

<unk> been very very pleased with the results.

This is substantial.

Back improvement over our previous offtake agreement.

With the.

Equally creditworthy and reliable counterparty that we're excited to be doing business with.

That we believe fully reflects the value of the product that we're producing as a result, our quality spread that we werent capturing previously that we do now.

Doug Hogg: Manav Gupta, Noah Kaye, Eric Stine, Brian Butler, Vertex Energy, Crack. So we're in a much better position for that now, you know, because of how quickly the feeds come in. Pricing adjusts to account for the decline. Regulatory Credits, you know, that remains to be seen. We're still chasing that, right? I mean, we've got a, Friends have continued to collapse. The CFS isn't helping much, but it is at a very, very low level.

And the next opportunity for that is.

Just marching through the products.

Diesel and gasoline.

We havent noticed period approaching in than we do.

Those are.

Open for unbranded products.

Well next year.

We've got some time to to work on that.

Our off take partners has been very supportive.

It's a good relationship it's worked very very well operationally.

But we want to make sure that from a pricing standpoint.

A fair position to full.

Full market value for our products, which we're now in a position to do solid results and jet and we look forward to the results on diesel and gasoline as well.

Okay great.

Doug Hogg: So, you know, feeds have come down quite a lot, certainly dramatically from third and fourth, but they still have room to run in order to create the right margin structure, given that RENs have declined fast. So we feel good about the progress we've made in that regard and certainly very comfortable that we're in a great position from a supply chain standpoint, have access to a broad array of feeds, with efficient logistics, good modes of transmission, and now a really good opportunity to optimize our storage and terminaling positions to try to eliminate as much of that lag impact as we can, as we're coming down the price. Okay, that's great. Thank you. Your next question comes from the line of Noah Kaye with Oppenheimer. Your line is open.

Hedges that you entered into.

So a lot of detail in the release and slides. So I appreciate that I guess.

Sure.

Those of us listening at home.

The hedged positions.

For January and February of.

Effectively in the money it looks like they were struck on fairly attractive terms.

And March seems to be sort of in line with the market, but maybe you can comment on that.

Yes, so just a little bit about on strategy as you know.

We hedged about 36% of our gasoline pool.

Chris.

<unk>.

That was.

Again kind of getting our programs in place getting back into a routine.

<unk>.

Taken advantage of attractive cracks when they presented themselves on the forward curves.

Noah Duke Kaye: Picking it up on the marketing front, I think, in the prepared remarks, you mentioned some of the initial off day contracts coming up either for renewal or expiring. Can you just elaborate on that a little bit and talk about potential pricing and margin capture opportunities? Yeah, so the first contracts that we were able to retender to the market, predominantly jet, that came up. Corridor, it rolls over on April 1st to a new contract.

Felt like that.

That gasoline spread in late summer that carried through the end of the year was unusual.

We also had.

So we took advantage of that that was a very favorable outcome on those hedges. Obviously, we wish we would have had more but.

On the other annualize wish you would lose money on the hedges because you are making more money on the product right. So.

But that turned out to be a good position. We took the same mindset for first quarter on diesel where we saw.

Very strong strengthening in the crack spread for first quarter.

Late in the fourth quarter.

Doug Hogg: So we took that to market in the fourth quarter last year, and I've been very, very pleased with the results. Netback improvement over our previous OPTEC agreement, and more. I'm Eric Stine.

Well above our margin targets. So we took advantage of that for about half of our production.

<unk>.

And again those have been we feel comfortable in those hedges I think the market held up the whole time surprisingly so.

Doug Hogg: I'll see you next time. We are an equally creditworthy and reliable counterparty that we are excited to be doing business with, that we believe fully reflects the value of the product, quality spread that we weren't. And, you know, the next opportunity for that is marketing through the products, diesel and gas.

In this case it turns out they werent really necessary, but we still believe it's a prudent approach when you see.

No cracks present themselves on the certainly the front quarter that are well above what youre planning for in terms of budget.

So thats the approach I would say that so as we look at this quarter.

And we look at second and third quarter as James mentioned, we are positioning the plant to gear up for driving season make sure. We can run Max rates and captured we expect to be healthy margins through the summer.

Doug Hogg: We have a notice period approaching, and then, and for unbranded products. Thank you. We've got some time to work on that. You know, our offtake partner has been very supportive, a good relationship. It's working very, very well operationally, we want to make sure of the price.

So we won't at that point my expectation is that this at this date that we would not hedge second and third quarter of gasoline or diesel.

The forward curves are telling us do that at this time.

Doug Hogg: We're in a fair position, getting full market value for our product, Do you see the results in JET? Okay, great. The hedges that you entered into, and, you know, there's a lot of detail in the release and slide, so appreciate that. I guess, for those of us listening at home, are the hedge positions for January and February effectively in the money? It looks like they were struck on fairly attractive terms, and March seems to be sort of in line with the market, but maybe you can comment on that.

But I would expect in third quarter.

We're really throughout the summer and can see the gasoline cracks present themselves as very attractive in the fourth quarter.

We will plan to take advantage of that at that time for a material portion of our fourth quarter production. So if you think about seasonally thats kind of how we're how we're looking at it.

The deep gas is strong going into the winter and we want to take advantage of it and if diesels.

Unusually strong going into summer, where we normally see a bit of a drop off.

Nearly as seasonal gasoline, but it's still there.

Look at that for the first quarter.

Doug Hogg: Yeah, so just a little bit about strategy. As you know, we hedged about 30, um, you know, that was again, kind of getting our programs in place, getting back into a routine, taking advantage of Tractive Cracks when they presented themselves on the forward curve felt like that.

Okay.

Last one really around.

Cash and capital expenditures.

So guiding for an uptick in that sort of a 2000 $25 million range Q1I think.

A good portion of that should really be fourth quarter maintenance correct. So just help us understand how much is kind of growth versus maintenance and then how much is left to spend on the phase two.

Doug Hogg: That gasoline spread in late summer that carried through the end of the year was new. We also had, and we took advantage of that. That was a very favorable outcome on those hedges. Obviously, we wish we would have hedged more. On the other hand, you always wish you would lose money on the hedges because you're making more money on the product, right?

Expansion for the <unk> operations.

Yes. This is Chris no. Thanks.

The majority of that 20 to 25 is around maintenance.

Doug Hogg: So, but that turned out to be a good position. We took the same mindset for the first quarter on diesel, where we saw very strong strengthening in the crack spread for the first quarter late in the fourth quarter, well above our margin targets. So we took advantage of that for about half of our production. You know, again, those have been, we feel comfortable with those hedges. I think they're the market held up the whole time, surprisingly. So,

As James noted we're heading into a.

Few turnaround opportunities that had been planned.

So the majority again is maintenance and there is a small piece that is growth and then a little bit R&D.

At least two thirds of that is the maintenance section. So that's catalyst change and doing the work.

The reformer.

Okay, and then how much is left to spend on the <unk> expansion.

For phase two the balance is about $30 million.

Okay.

In future quarters.

Doug Hogg: In this case, it turns out they weren't really necessary, but we still believe it's a prudent approach when you see... Cracks present themselves in certainly the front quarter that are well above what you're seeing. So that's the approach. I would say that, you know, as we look at this quarter and we look at, you know, the second and third quarter, as James mentioned, we're positioning the plant to gear up for driving season, make sure we can run max rates and cap. We expect to have healthy margins through the summer. So we won't, you know, at that point; my expectation is that this, at this date, we would not have. 2nd and 3rd Quarter of Gasoline Order.

Okay.

I'm sorry go ahead.

So thats loaded to the back half of the year.

Okay Alright.

That's what I was going to ask but maybe just the last question I mean, it looks like.

We've got our math right some progress on inventories here in <unk>.

The working capital.

How do we think about.

<unk>, you mentioned that Youre in a leaner position now on the RV inventory side, but what should we be thinking about in terms of.

Central working capital impacts at least here to start the year.

From an inventory perspective as you guys know is the biggest driver of our working capital I'd say, we're in a pretty good spot.

Doug Hogg: The forward curves aren't telling us to do that, and but I would expect in the third quarter or really throughout the summer, see the gasoline crack present themselves as very attractive in the fourth quarter. We will plan to take advantage of that time for, you know, a material portion, think about it seasonally, that's kind of how we're looking at it. Gas is high going into winter, and we want to take advantage of it. Diesel is unusually high going into summer, where we normally see a bit of a drop-off, not nearly as seasonal as gasoline, but still there.

The inventory has come down during the fourth quarter.

Going forward, we don't see a huge build or a large build in inventory, but I would say your working capital is going to remain fairly flat.

Your big driver drawn cash is going to be capex.

Alright.

Great. Thanks, I'll turn it over.

Thank you.

Your next question comes from the line of Amit Dayal with H C. Wainwright. Your line is open.

Thank you and good morning, everyone.

And.

And then with respect to the bank of America process.

What are your options right now.

But you are considering sort of the best options that there might be exploring for you and have you found in any one of those options that they might be presenting the reason I'm asking this question as you potentially may have.

Chris Carlson: We would look at that. Okay, helpful. Last one really around... Cash and Capital Expenditures. So guiding for an uptick to that sort of $20-$25 million range in one queue, I think a good portion of that should really be for maintenance, correct? So just help us understand how much is kind of for growth versus maintenance and then how much is left to spend on the Phase 2 expansion for the RD operation. Yeah, this is Chris Noah.

Expansion efforts are already in play as well.

At the same thing Stuart Max utilizing the available capacity.

Just trying to get a sense of.

How 2024 will play out with this bank of America process and clean.

And while that impacts.

All of the other activities and what the timeline might be to get some sort of a decision on the next steps on that front.

Yes.

Good question Fair question Amit.

Chris Carlson: Thanks. The majority of that 20 to 25 is around maintenance. You know, as James noted, we're heading into a few turnaround opportunities that have been planned. So the majority, again, is maintenance, and there's a small piece that is growth, and then a little bit. At least two-thirds of that is the section. So that's capitalist change and doing the North and South.

Let me, let me start by saying that this be a bank process started probably 10 months ago, because we knew that the R&D investment.

Was sizable for the company and more on the development front, so starting a new business from nothing and bringing it to life like the team has done is nothing short of undertaken.

Chris Carlson: Okay, and then how much is left to spend on the RD expansion? Yeah, for phase two, the balance is about $30 million. OK, and for future quarters. Thank you. I'm sorry, go ahead.

Yes.

As I said in my comments, we've spent $260 million at the end of the fourth quarter in new cash so.

Chris Carlson: And most of that's loaded on the back half of the... Okay. All right. That's what I was going to ask.

We don't have that much in long term debt. So that really speaks to the health of the crude side of the business and what it's brought to the table and contribution.

Chris Carlson: Maybe just the last question. I mean, you know, it looks like we've got our math right, and made some progress on inventories here in terms of working capital. How do we think about, you know, 1Q? You mentioned that you're in a leaner position now on the RD inventory side, but, you know, what should we be thinking about in terms of potential working capital impacts, at least here to start the year? From an inventory perspective, which, as you guys know, is the biggest driver of our working capital, I'd say we're in a pretty good spot. You know, inventory has come down during the fourth quarter. So going forward, we don't see a huge build or a large build in inventory. So I would say your working capital is going to remain fairly flat. You know your big driver for drawing cash is going to be kept, All right. Great. Thanks. I'll turn it over to you.

Yes.

The Bofa process is designed to bring the liquidity back to the balance sheet for the investments that we've made on the R&D side.

And that process was.

It was focused.

Obviously, we knew as we went to the market it would open up.

Other conversations.

<unk>.

That's certainly what's taken place and we are tendering those those conversations as we speak so the process could not.

Have been executed better, but <unk> I think they've done an amazing job. We've got really good people really strong companies at the table. This interested.

Amit Dayal: Thank you. Your next question comes from the line of Amit Dayal with HC Wainwright. Your line is open. Thank you. Good morning, everyone.

And the work that we're doing.

Ben Cowart: Ben, with respect to the Bank of America process... What are your options right now that you are considering sort of, you know, the best options that they might be exploring for you? And have you honed in on any one of those options that they might be presenting? The reason I'm asking this question is, you potentially have, you know, expansion efforts already in place as well, but at the same time, you're still not fully utilizing the available capacity, just trying to get a sense of how 2024 will play out with this Bank of America process in play and how that impacts all of the other activities and what the timeline might be to get some sort of a decision on the next steps on that front. Yeah, good question A fair question.

Both are around the renewables long term because I think everyone sees.

The debt target beyond 2025 renewables business, we're kind of at the end of a policy cycle, both RFS and federal level and also at a California El CFS level and so we've got some insight for 25 around our <unk>, which is some.

Some new <unk>.

Frontline opportunity as well as.

L. CFS, we got some insight we just haven't yet seen the new RV OS that we hope to see from there.

The <unk> side of the business, so with all that in mind.

The interest in R&D is very focused in that direction and also in SaaS SaaS seems to be the.

Ben Cowart: But let me start by saying that this B of A process started probably 10 months ago because, you know, we knew that the RD investment was sizable for the company and more on a development front. So starting a new business from nothing and bringing it to life like the team has done is nothing short of an undertaking. The, you know, as I said in my comments, we spent $260 million at the end of the fourth quarter in new cash. So, you know, we don't have that much in long-term debt. So that really speaks to the health of the crude side of the business and what it's brought to the table in contribution. Um, the BFA process is designed to bring liquidity back to the balance sheet for the investments that we've made on the RD side. And that process was focused. Obviously, we knew as we went to the market, it would open up other conversations, and that's certainly what's taking place, and we're kicking those conversations as we speak. So the process could not have been executed better by BFA.

The next leg of this industry and so so we've got a great platform to continue to evolve in the renewable business in that direction.

Second is the.

The broader interest in the asset so.

We've got some really interesting infrastructure capacity opportunities prop.

Property scale.

And so we've entertained.

Some non conforming.

Conversations that.

Take a little bit more time to shake out and so we've had.

Management presentations, we've had site visits.

We've had initial.

Indication of values and we're moving towards some some firm offers to partner with the company. So that's the best update I can provide and kind of where we're at as you said.

Ben Cowart: I think they've done an amazing job. We've got really good people, really strong companies at the table that are interested in the work that we're doing, both around renewable energy for the long term because I think everyone sees the, you know, the target being a 2025 renewable energy business. We're kind of at the end of a policy cycle, both at the RFS and federal levels and also at the California LCFS level. And so we've got some insight for Hour 25 around, you know, some new frontline opportunities, as well as LCFS. We got some insight. We just haven't yet seen the new RVOs that we hope to see from the RENS side of the business. So with all that in mind, the interest in RD is very, you know, focused in that direction. And also in SAF.

Liquidity is important in the current R&D market. So.

We're very measured in managing our cash we got a very good cash focus system that we're exercising weekly and so we're going to continue.

With.

Diligent.

Preservation of cash focus on margin and reducing our costs and like Doug said, we've got a lot of things out of our way today and we've got the people in place and they're doing a really good job of fine tune in.

All fronts of the business.

Thank you Ben.

Yes, I'll leave it there I'll take my other questions offline. Some of my other questions have already been discussed so thank you so much.

Ben Cowart: SAF seems to be the, you know, the next leg of this industry. And so we've got a great platform to continue evolving the renewable business in that direction. Second, there is a broader interest in the asset.

Thank you Amit.

Your next question comes from the line of Brian Butler with Stifel. Your line is open.

Hi, Good morning, guys. Thanks for taking my questions.

Ben Cowart: So we've got some really interesting infrastructure, capacity, opportunities, and property scale. And so we've entertained some non-conforming conversations that take a little bit more time to shake out. And so we've had management presentations. We've had site visits.

Good morning, Brian.

Just on the first one on the conventional based on the hedges that you have in place and your expectation on the downturn as well as just kind of a production for <unk> how.

How should we think about the EBITDA to the conventional business for <unk>, assuming prices stay where they are I mean are we positive a little positive a lot positive negative.

Ben Cowart: We've had initial indications of values, and we're moving towards some firm offers to partner with the company. So that's the best update I can provide and kind of where we're at. As you said, liquidity is important in the current RD market. So we're, we're, we're very measured in managing our cash. We've got a very good cash focus system that we exercise weekly. And so, you know, we're going to continue with a diligent preservation of cash, focus on margin, and reducing our costs. And like Doug said, we've got a lot of things out of our way today, and we've got the people in place. And they're doing a really good job of fine-tuning, you know, all the fronts of the business. Thank you, Ben. Yeah, I'll leave it there. I'll take my other questions offline. Some of my other questions have already been discussed, so thank you so much. Your next question comes from the line of Brian Butler with CIFL. Your line is open. Paul, good morning, guys.

Yes, I mean, as we look at the forward curves right now Brian and then based on the cracks that Doug laid out.

Yes, I would say we're positive at the moment.

Okay.

Okay, and then on the Ci scores when you look at the new scores can you give any color around maybe the magnitude of the benefit I mean, how much of an improvement are we looking at relative.

Relative where the baseline is.

With that improvement does that make Rd.

Pass breakeven on an EBITDA basis or is it still need feedstock other feedstock improvements.

That's a great question that's about it.

The improvement varies by.

By feed but it's.

It's a 20% improvement over over the defaults in some cases better than that so it's helpful, but I would say that.

Well, it's yes, that's probably that probably gets you pretty close to.

Brian Joseph Butler: Thanks for taking my question. Warner Brown, Just on the first one, on the conventional, based on the hedges that you have in place and your expectation of the downturn as well, it's just kind of the production for 1Q, how should we think about the EBITDA out of the conventional business for 1Q? Assuming prices stay where they are, I mean, are we positive, a little positive, a lot positive, or negative? Yeah, I mean, as we look at the forward curves right now, Brian, and then based on the cracks that, you know, Doug laid out, yes, I would say we are positive. Okay.

To a breakeven margin with those.

But I would say that.

In general.

As fast as rents have continued to decline I mean, we've lost.

Another 40 of Ren.

This quarter, so almost almost 70 a gallon.

Since January down right, So and we lost was a James over a dollar a gallon in the fourth quarter on Rins. So yes.

L CFS has been.

Depressed and that's certainly a factor and Dci values will help us recover a little bit more value out of that even at these levels for sure.

But.

Doug Hogg: And then on the CI scores, when you look at the new scores, can you give any color around maybe the magnitude of the benefit? I mean, how much of an improvement are we looking at relative to where the baseline is? And with that improvement, does that make RD pass-break even on an EBITDA basis, or does it still need other feedstock improvements? That's a great question. It's about, the improvement varies by feed, but it's, you know, it's a 20 plus percent improvement, default, better than that, so it's, it's helpful, but I would say that while it's, yeah, it's probably that probably gets you pretty close to a break-even margin with those. But I would say that, in general, as fast as RINs have, line.

The impact of that is is muted because they'll CFS is so depressed anyway, right. So you get a little bit higher higher value or more credit generation, but the credits are still worth a lot less than they were a year ago as an example.

But the real the real killer for Rd margins right now, it's just the RIN performance on on <unk>.

We were down.

Almost.

While there are 50% off where they were between <unk>.

January and February.

Okay.

And some of that move was very violent and just this week.

So when we're trying to we're trying to forecast run rates.

Plan are.

Volumes against the available margin.

It's an extremely volatile next.

Sure.

When you add Brian moves of that magnitude within.

<unk>.

So that's what we're faced with so I think I think the industry I think we and the industry frankly need.

Doug Hogg: I mean, we've lost another 40 cents a rind this quarter, so almost $0.70 a gallon. Manav Gupta, Noah Kaye, Eric Stine, Brian Butler, Vertex Energy, down right so and we lost, what was it James over a dollar a gallon in the fourth quarter on rent, so yes, you know the LCFS has been.

Peds to recalibrate.

So the current margin picture.

Pretty good amount from where they are they've come down a good bit from last fall, obviously, but theres.

There is more to give their hardy.

<unk> margins are going to be very tough for everybody.

Right I mean, I guess, how much do we see the feedstock come in I mean, I don't think returns are going to improve until we get a new RVO and that's probably a couple of years out.

Yes.

Doug Hogg: The impact of that is muted because LCFS is so depressed anyway, right? So you get a little bit higher value or more credit generation, but the credits are still worth a lot less than they were a year ago. But the real killer for RD margins right now is... We were down. I'm 50% off where they were in January and February, and some of that move was very violent.

Sorry.

If rigs aren't going to improve and feedstock remains persistently higher than expected is there other options for the.

The Rd.

Infrastructure or is it really you just got to hope these things improve and then Rd starts to work.

Well, Brian I think Thats a good question and the answer is yes, I mean, the assets that we have.

Doug Hogg: So when we're trying to, you know, we're trying to forecast run rate and YNR, volumes, you know, against the available margin. It's an extremely volatile... at Bryn Mews of that magnitude. So that's what we're faced with. So I think the industry, I think we and the industry frankly need feeds to recalibrate to the current margin of picture, a pretty good amount from where they are. They've come down a good bit from last fall.

<unk>.

Had their own life prior to the investment the investments that we've made are robust improvements in and can be.

Recaptured in a different way long term and so.

We always have.

Options and we.

We constantly review those options as.

As we look at these current market conditions.

Doug Hogg: There's more to give there, or else RD margins are going to be very tough. Right, I mean, unless we see the feedstock come in, I don't think RINs are going to improve until we get a new RBO. And that's probably a couple of years out.

Okay. That's helpful. And then one last quick one on the first quarter 'twenty four with all the balance sheet changes, what's the expected interest expense now.

Interest expense should run for the term the term loan which is the biggest portion.

<unk> added $8 million to $9 million.

Brian Joseph Butler: If RINs aren't going to improve and feedstock remains persistently higher than expected, are there other options for the RD, you know, infrastructure, or is it really you just got to hope these things improve and then RD starts to work? Well, Brian, I think that's a good question and the answer is yes. I mean, the assets that we have had their own life prior to the investment. The investments that we've made are robust improvements and can be recaptured in a different way over the long term. And so we always have options, and we, you know, constantly review those options as we look at these current markets.

Okay. Thank you very much.

Thank you Brian.

There are no further questions at this time I will now turn the call back over to the speakers for closing remarks.

Yes, operator, and thank you everyone for joining the call today. We appreciate your interest in the business and we look forward to keeping you informed us as we complete this quarter and come back.

<unk>.

New information on the progress, we're making here with the business.

Okay.

This concludes today's call you may now disconnect.

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Sure.

Yes.

Ben Cowart: Okay, that's helpful. And then one last quick one. In the first quarter, 24 with all the balance sheet changes, what's the expected interest expense now? Yeah, interest expense should run for the term, you know, the term loan, which is the biggest portion, right at 8 to 9 million.

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Okay.

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Chris Carlson: Okay, thank you very much. Thank you, Brian. There are no further questions at this time. I will now turn the call back over to the speakers for closing remarks, operator, and thank you everyone for joining the call today. We appreciate your interest in the business, and we look forward to keeping you informed as we complete this quarter and come back with new information on the progress we're making here with the business. Thank you. This concludes today's call. You may now disconnect.

Okay.

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Okay.

Okay.

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