Vertex Energy, Inc

Good morning, ladies and gentlemen, and welcome to the Vertex Energy second quarter 2022 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Noel Ryan.

Thank you, Ali, and good morning and welcome to Vertex Energy's second quarter 2022 results conference call. Leading the call today are our Chairman and CEO Ben Cowart, CFO Chris Carlson, Chief Strategy Officer Alvaro Ruiz, and Chief Operating Officer James Rame. We issued a press release before the market opened this morning detailing our recent operational and financial results. I'd like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For discussion of some of the risk factors that could cause actual results to differ, please refer to the risk factors section of Vertex Energy's latest annual and quarterly filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during our call and the press release issued today. Today's call will begin with remarks from Ben Cowart, followed by a financial review from Chris Carlson. And at the conclusion of these prepared remarks, we'll open the line for questions. With that, I'll turn the call over to Ben.

Thank you, Noel. Good morning. Welcome to today's call. We'll begin the call with a high-level overview of our second quarter results, which include a full quarter of contributions from the mobile refinery, which we assumed ownership as of April 1st. During a volatile period for the broader energy complex, we generated record consolidated second quarter adjusted EBITDA of $71.3 million, supported mainly by contributions from our recently acquired mobile refinery, which generated $63.6 million in standalone adjusted EBITDA during the period. Our legacy UMO collection and re-refining assets also performed exceptionally well in the period, with Marrero and Heartland both operating near capacity during the second quarter. Product spreads and sales volumes for the legacy business have continued to outperform expectations. Since acquiring the mobile refinery, we've experienced strong demand for conventional fuels in the local market. At the same time, recent decisions by competitors to reduce refining capacity in our regional markets have contributed to tightness in product supply, resulting in elevated refined product margins. We believe a similar narrative is playing out across many areas of the country given a structural shortage of domestic refining capacity. To that end, according to the EIA domestic inventories of both, distillate and gasoline remain well below the trailing five-year average, while demand remaining healthy implying further potential upside to product cracks. During the second quarter, Mobile operated at 96% of operable capacity, producing just under 72,000 barrels per day, which was ahead of our guidance for between 69 and 70,000 barrels per day. Total gross profit per barrel, excluding the realized hedging loss and inventory adjustments, was more than $23 per barrel in the second quarter, are approximately 51% of the benchmark 2-1-1 Gulf Coast crack spread in the period. Throughout the second quarter, we processed a combination of WTI, LLS, and local light suite crews. Total production of finished high-value light products, which includes gasoline, distillate, and jet fuel, represented approximately 70% of the total production in the second quarter. During July, market conditions remained favorable, supported by seasonal strength for conventional fuels. While the 2.1.1 has declined sequentially versus second quarter levels, it remains more than 100% above the third quarter in 2021. During the third quarter, we intend to operate Mobile at between 72 and 74,000 barrels per day, positioning us to capitalize on continued strength in the market. Turning now to a discussion of the ongoing renewable diesel project at the Mobile refinery. During the second quarter, we began construction of the foundations and fabrication of pipe related to the project. While the supply chain remains challenging, our team says continue to successfully navigate these issues, having orders on all major loan lead equipment earlier in the year. As before, we expect the total project cost to be in the range of $90 to $100 million, funded entirely through existing cash and on-hand cash flow from operations. To date, we have committed $43 million to the project and are trending to within budget at this time. In October 2022, we expect to engineer a planned shutdown of a hydrocracker at the Mobile Refinery as we move forward. We believe this planned unit shutdown will have no impact on crude oil throughput rates during the fourth quarter of 2022. And consistent with our previous guidance, initial renewable diesel production volumes are expected to come on stream by first quarter of 2023. Before I turn the call over to Chris, allow me to share a few comments around our Report results this quarter. No question, the second quarter had some noise in it, including both realized and unrealized hedge losses concurrent with the acquisition of the refinery. We made the decision to enter into a series of crack, spread, and inventory hedges designed to mitigate our downside risk while locking in 50% of our planned production during Q2 and Q3 at what remained historically elevated levels. It was the safe bet, albeit one that capped our upside during a period when spreads moved higher. With a full quarter at Mobile behind us, together with the expectations for a prolonged period of elevated refined product margins, we have currently chosen not to extend our hedging program past the third quarter of 22, positioning us to take full advantage of the spot market beginning in the fourth quarter of this year. During a period of transition, our people executed on plan, ensuing a successful integration of the mobile refinery while continuing to drive value creation across our legacy business. I'm exceptionally proud of the combined efforts of our entire team, each of whom played an integral role in our record second quarter results. Looking ahead, we will continue to advance our strategic plan with an emphasis on one, ensuing safe, reliable operations. Two, investing organically in high value renewable fuel opportunities. Three, driving superior cash flow conversion, particularly as we exit a CapEx heavy period leading up to the completion of the RD conversion. continuing to pursue a balanced capital deployment strategy. Long term, we intend to use Vertex as a platform upon which to create an energy transition of scale, one focused on delivering next-generation decarbonization solutions. We believe the biofuel sector remains an attractive opportunity, one where we can become a leading regional producer of renewable diesel and, over time, sustainable aviation fuels. With the pending passage of the Inflation Reduction Act, we see a positive trend towards the multi-year extension of tax incentives such as the Blender's tax credit that will support future visibility of project economics. We also see a trend towards accelerated demand for renewable fuels from commercial and industrial customers as companies seek to further align their business priorities with environmental responsibility. In summary, it's an exciting time for us here at Vertex. We appreciate the continued support of our customers, shareholders, and partners, and look forward to building on the momentum evident across our business. With that, I'll hand the call over to Chris.