5 QUESTIONS AND ANSWERS with BENJAMIN COWART - CHAIRMAN AND CEO
- What is the state of the industry and how is it impacting UMO price?
- What are the key business drivers for Vertex’s growth in 2016 and 2017?
- When will Vertex to be net income profitable?
- What is the joint venture with Penthol, and how do you envision demand for Group III base oil?
- What are three things you think investors are missing about Vertex’s long-term value?
The industry is operating at a supply and demand balance year to date. The higher oil prices attracted multiple utility fuel cargo tenders primarily for Mexico. However, these tenders should play out in October. This spot demand in the Gulf has increased the value of UMO for Q2 and Q3. This is also the periods of the year most asphalt roads are paved which, in some cases, plants will burn UMO where they can't get natural gas. Because most of this seasonal demand was taken out of inventory, it had very little impact to the charges on the street for UMO collections. I estimate another inventory build over the winter.
We are focused on three key areas that will drive growth in volume while maintaining the currently better margins.
• Fill the new refinery capacities between OH and LA. This will give us additional fixed cost leverage on an estimated 15 million gallons plus margin spread on those gallons;
• Expand our street collections and add contribution margin over price paid for 3rd party supply; and
• Improve our pricing to index for the products produced.
Based on current market conditions and normal production, we are targeting 2017 to be a profitable year.
Our venture with Penthol is a sales and distribution agreement whereby we were able to leverage our logistics systems and infrastructure as well as our existing customers that buy our group II base oils from our Ohio facility. The U.S. demand for GIII base oil is growing every day. This is driven by new OEM specifications that require higher quality base stocks to meet the new lubricant formulation requirements.
1. The current carrying cost for non productive assets that are in the development stage or in the process of being monetized.
2. The market value of our industry critical assets and the additional margin these assets will allow us to gain over time, as we expand our own collection footprint across the US. Today we give up margin when we have to buy the majority of our feedstock from 3rd party suppliers.
3. We have a legacy team of A players, tier one asset base, in a staple industry. The industry has the ability to adjust to any oil price given enough time. Today, through our direct collections, we charge an average of $.32/gal to pick up used oil from a generator where we were paying over $1/gal prior to the collapse in oil prices.