Heritage-Crystal Clean Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
October 20, 2021

There are 5 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Heritage Crystal Clean Incorporated Third Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, all callers' microphones are muted and you will have an We ask that all callers limit themselves to 1 or 2 questions. Some of the comments we will make today are forward looking. Generally, the words aim, anticipate, believe, could, estimate, expect, intend, may, plan, project, Should, will be, will continue, will likely result, would and similar expressions identify forward looking statements.

Operator

These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward looking statements. These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward looking statements speak as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. Please refer to our SEC filings, including our annual report on Form 10 ks, as well as our earnings release posted on our website for a more detailed description with the risk factors that may affect our results.

Operator

Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our Web site. Also, please note that certain financial measures we may use on this call, such as earnings before interest, Taxes, depreciation and amortization for EBITDA and adjusted EBITDA are non GAAP measures. Please see our website for reconciliations of these non GAAP financial measures to GAAP. For more information about our company, please visit our website at www.crystal clean.com. With us today from the company are President and Chief Executive Officer, Mr.

Operator

Brian Recatto and the Chief Financial Officer, Mr. Mark DeVita. At this time, I would like to turn the call Over to Brian Riccado. Please go ahead, sir.

Speaker 1

Thank you, Julie. Good morning, everyone, and thank you for joining us today. On behalf of the entire Crystal Clean team, I want to let our investors know how pleased we are with the record setting 3rd quarter results we released last night. We produced several records during the Q3, including total revenue, net income, earnings per share and EBITDA. In several cases, our 3rd quarter results were significantly higher than our previous record performance.

Speaker 1

Mark will provide additional detail, but total 3rd quarter revenue exceeded expectations at 123,200,000 which helped produce record EBITDA of $30,600,000 Now I would like to discuss the results in both of our reporting segments. As I did last quarter, I will start with our Oil Business segment. During the Q3 of fiscal 2021, Oil business revenues more than doubled compared to the Q3 of fiscal 2020 to 50,800,000 The increase in revenue was mainly due to an increase in our base oil netback by $2.17 per gallon compared to the Q3 of 2020 And by $0.63 per gallon compared to the Q2 of 2021. Additionally, our base oil Sales volume of 11,200,000 gallons during the quarter was 12.9% higher than the volume of base oil sold during the Q3 of 2020 and further contributed to our record revenue performance. Oil Business segment operating margin increased sharply to a record 42.8 percent in the Q3 of 2021 compared to 3.4% in the Q3 of fiscal 2020.

Speaker 1

The higher operating margin compared to the Q3 of 2020 was mainly due to an increase in the spread between a netback on our base oil sales And the price paid or charged to our customers for the removal of their used oil. Our re refinery team continued to execute well during the Q3. It has been more than 2 years since we've had significant unplanned downtime in our rig refinery. We produced a 12 week Quarterly record of 12,500,000 gallons of base oil, which was approximately 10% more than the Q3 of 2020. We're very pleased with the consistency our refining operation has demonstrated over the past 2 years.

Speaker 1

Let's now move on to the Environmental Services segment. In the Environmental Services segment, revenue for the Q3 of 2021 was $72,300,000 compared to $62,400,000 for the same quarter of 2020, An increase of $9,900,000 or 15.9 percent. The increase in revenue was mainly due to our continuing recovery from the negative Impacts of the COVID-nineteen pandemic. We experienced volume increases across all service lines in the segment When compared to the Q3 of 2020. While it was great to see our improvement relative to the pandemic impacted results from 2020, We're even more pleased to see that our revenue for the Q3 exceeded revenue from the Q3 of 2019 by 4.9% in this segment.

Speaker 1

Environmental Services profit before corporate, Selling, general and administrative expenses was $17,300,000 or 23.9 percent of revenue Compared to 14.6% or 23.4% of revenue in the year ago quarter. The improvement in operating margin would have been greater if not for inflationary headwinds caused in part by supply chain challenges, which are Thank you, many industries today. Before we look ahead, I want to provide an update relative to our M and A activities. I'm happy to report we closed on 3 acquisitions in the past 2 months. One transaction closed at the end of the 3rd quarter and the other 2 transactions closed at the beginning of our 4th quarter.

Speaker 1

These transactions are providing several benefits to us. First, 2 of the businesses operate in the Western U. S. Which helps build our density in these important growth markets. These acquisitions have also provided additional wastewater treatment and non hazardous containerized waste processing capabilities, As well as expanding our internal technical field services offering.

Speaker 1

We can now internalize more projects such as field work, which should increase our win rate and profitability for these projects. Most importantly, We're very excited about the new additions to the Crystal King, Clean family as a result of these acquisitions. Now I would look forward and discuss our outlook for the future. In our Environmental Services segment, Our growth compared to 2019 is an indication that we are working hard to put the impacts of the COVID-nineteen pandemic behind us. We achieved the growth compared to 2019 even though our manpower loss time hours were up approximately 27% During the Q3 compared to the Q3 of 2020.

Speaker 1

While there are still risks relative to the Delta Variant of COVID-nineteen, we are confident that we can operate effectively and continue to drive revenue growth in the current environment. During the Q4, we expect to continue to grow our Environmental Services segment revenue at a mid single digit rate compared to the Q4 of 2019. From an operating margin percentage standpoint, we have been facing and expect to continue to face Supply chain issues and inflationary pressure for containers, fuel, 3rd party logistics, waste disposal and other items. We are working hard to counteract the negative impacts of these items by internalizing more non hazardous waste processing and by implementing our annual price increase at the beginning of the 4th quarter. We have early indications The rate of customer acceptance of the price increase is higher than what we might expect in a typical year.

Speaker 1

Despite the cost pressures we're experiencing, We believe our price increase along with increased internalization of customer waste streams will allow us to improve operating margin in Q4 Compared to our Q3 results. From an oil business segment perspective, we're beginning to see more balanced supply and demand With mid to light grade Group 2 base oils as we move further into our 4th quarter. While our current base oil netbacks are slightly higher Our average during the Q3, we expect seasonally reduced demand and higher feedstock prices as offsetting factors, We should keep our product pricing stable through year end. As we look forward to 2022, there are several base oil refinery outages Just planned for the Q4 of this year and the Q1 of 2022. This will reduce available supply and should provide 4th for base oil prices in the early next year.

Speaker 1

On the used oil feedstock side of the business, We saw our cost increase with the bullish move upward in crude oil pricing during the Q3. With crude prices still on the rise, We continue to feel upward pressure on used oil feedstock costs. However, the pressure has moderated more recently and we do not expect significant Additional upward pressure on used oil pricing during the remainder of the year. As planned, we completed an Extended re refinery turnaround during the beginning of Q4. The turnaround generally went as planned and we have another shorter turnaround planned For the next month, the 2 turnarounds will somewhat limit our base oil production during the Q4, which we expect will be approximately 13,300,000 gallons.

Speaker 1

For the year, we are still on pace to produce over 49,000,000 gallons of base oil. From a profitability perspective, we expect 4th quarter operating margin to be in the mid to high 20% range as continued high base oil pricing It's somewhat offset by less production volume caused by our planned downtime, as well as constraints on the availability of hydrogen. In addition, it appears that higher natural gas prices will increase operating costs for the remainder of the year and into the Q1 of 2022. The outlook I just provided assumes the general economy will continue to recover from the COVID-nineteen pandemic and the Supply chain disruptions will gradually subside. Should this not be the case, this could negatively impact our outlook.

Speaker 1

Before I turn things over to Mark, I want to let everyone know we recently took a significant step forward in our ESG initiative with the release of our first Sustainability report. You can find a copy of the report on our website. We believe we have a very compelling ESG The story to tell in the issuance of this sustainability report is the first step in our continual process to communicate the many ways in which we are striving to protect the earth's Resources by helping the business world run cleaner and positively impact the people and communities we interact with on a regular basis. With that, Mark will take us through our Q3 financial results.

Speaker 2

Thank you, Brian. Good morning, everyone. It's great to be with you today. In the Q3 of 2021, we generated $123,200,000 of revenue compared to $87,100,000 in the same quarter of 2020, An increase of $36,000,000 or 41.4 percent. The increase in revenue was mainly driven by higher base oil pricing And continued growth and recovery from the impact of the COVID-nineteen pandemic in our Environmental Services segment businesses, which negatively affected 2020 revenues.

Speaker 2

Net income was a record $18,450,000 or $0.79 per diluted share for the Q3 of 2021. This compares to net income of $4,000,000 or $0.17 per diluted share in the year earlier quarter. This past quarter was not only the 2nd quarter in a row in which we had record high net income, Net income for the quarter was 22.5% higher than the Q2 of this year, which represented our Previous quarterly record. Let's get into the details of our Oil Business segment results. Oil Business segment revenues for the Q3 2021 were a quarterly record $50,800,000 an increase of $26,100,000 or 105.9 percent Compared to the Q3 of fiscal 2020, an increase of 41.9% compared to the Q3 of fiscal 2019.

Speaker 2

Brian mentioned the increase in netback drove higher revenue and gave you the change in netback on a year over year and sequential basis. But from a pre pandemic standpoint, our netback increased by $1.56 per gallon compared to the Q3 of 2019. From a profitability standpoint, Oil Business segment profit before corporate SG and A expense increased 20,900,000 to a record 42.8% in the Q3 of 2021 compared to 3.4% in the Q3 of fiscal 2020. The increase in operating margin compared to the Q3 2020 is mainly due to an increase in the spread between the netback on our base oil sales And the price paid or charged to our customers for the removal of their used oil. This spread was up $1.73 per gallon compared to the Q3 of 2020 and up by $0.50 per gallon compared to the Q2 of 2021.

Speaker 2

Compared to the Q3 of 2019, profit Before corporate SG and A expense was higher by $18,000,000 driven by a spread increase of $1.43 per gallon. From a used door collection standpoint, on a weighted average basis, during the Q3, we experienced a net change of 0.44 cents per gallon compared to the Q3 of 2020 as we move from a charge for oil position in 2020 to a pay for oil position this year. Compared to the Q2 of 2021, our pay for oil increased by $0.13 per gallon. From a used oil collection standpoint, Despite an 18% increase in the number of oil sales and service reps, we were able to keep our U. S.

Speaker 2

Oil collection route efficiency essentially flat during the Q3 compared to the prior year quarter. As you might expect, the cost of 3rd party used wall feedstock Also increased during the quarter. However, the cost of this feedstock increased by only $0.11 per gallon from the Q2 to the 3rd quarter. Part of the reason for this modest cost increase was the decline in demand for this material. During the Q3, we lowered our 3rd party feedstock purchases The Environmental Services segment reported revenue of $72,300,000 an increase of $9,900,000 or 15.9 percent compared to the year ago quarter.

Speaker 2

The 15.9% increase in revenue was mainly due to the lessening impacts of the COVID-nineteen pandemic on our business During the Q3 of 2021 compared to the Q3 of 2020, we saw volume increases in all of our lines of business compared to the Q3 of 2020. As Brian mentioned, compared to the results for the Q3 of 2019, Q3 of 2021 revenues were also higher. This growth was led by our containerized waste business with our wastewater vacuum, field services and ADPreeze businesses also showing growth. Environmental Services profit before corporate SG and A expense increased $2,600,000 18% in the Q3 of fiscal 2021 compared to the Q3 of fiscal 2020. Operating margin For the Q3 of 2021, it was 23.9% compared to 23.4% in the Q3 of 2020 and 25.7% during the Q3 of 2019.

Speaker 2

The increase in operating margin from last year was mainly driven by higher revenues Due to the waning negative impacts of the COVID-nineteen pandemic, which produced improved leveraging of fixed costs during the Q3 of fiscal 2021, partially offset by increasing costs for items such as containers and disposal services. The increase in operating margin compared to Excuse me, the decrease in operating margin compared to 2019 was primarily due to increasing costs in the areas I just mentioned. Total company operating costs increased $12,400,000 or 18.5 percent during the Q3 of 2021 compared to the Q3 2020, which was mainly due to higher labor costs, health and welfare costs, transportation related expenses and higher new oil feedstock costs as a result of more business activity due to the lessening impacts of the COVID-nineteen pandemic. Our overall corporate G and A expense of $14,400,000 represents an increase of $3,900,000 or 41.4 percent compared to the year ago quarter, Driven by an increase in our bonus reserve as well as the absence of temporary wage reductions and the lack of a suspension of our 401 match, both of which occurred during the Q3 of 2020. EBITDA of $30,600,000 was a record and up $19,600,000 Compared to the year ago quarter, this was the 4th consecutive quarter of record EBITDA and the 3rd quarter EBITDA was 16.8 percent higher than the previous record from the Q2 of 2021.

Speaker 2

The company's The income tax rate for the Q3 of fiscal 2021 was 25.1% compared to 22.7% in the Q3 of fiscal 2020. The rate increase is principally attributable to consistent levels of profitability as compared to the same quarter in the previous year. Looking at the balance sheet, we had an increase of $8,000,000 in cash during the Q3, which resulted in a balance of $75,300,000 of cash on hand Our primary sources of liquidity for the quarter are cash flows from operations and funds available to borrow under our revolving bank credit facility. We generated $24,200,000 in cash flow from operations during the quarter, which represents a 3 84% increase compared to the 3rd We also generated free cash flow of $20,700,000 during the Q3 of 2021 compared to $1,600,000 during the Q3 of 2020. As Brian mentioned earlier, we've recently closed on multiple acquisitions.

Speaker 2

We expect these businesses will contribute approximately $25,000,000 to $30,000,000 in annual revenue. Even as we work to integrate the newly acquired businesses, We continue to identify all the potential acquisition targets, which we believe can help us improve our business and achieve our mission. To summarize, we are working hard to combat the negative impacts inflation is having on our business in order to restore the margins in our Environmental Services segment and we are We're thrilled with the execution in the Oil Business segment and our ability to continue to take advantage of the favorable market conditions. This concludes our prepared remarks. I will now turn the call over to Julie to take your questions.

Operator

Thank you. Your first question comes from Michael Hoffman with Stifel.

Speaker 3

Thank you very much. Brian, Mark,

Speaker 1

you're having a good day. Yes. Hey, Michael. How are you?

Speaker 3

Good, good. Finer and frog's hair, as I say in my part of the world. Used Oil, just to be clear, when we had the 2nd quarter call, you gave us a maintenance schedule of sort of 3.5 days in 3Q and 8 10 days and 4. Because of the strong performance, did you push all sort of 11 to 14 days into 4Q?

Speaker 1

No, we didn't change anything, Michael. We may have miscommunicated on Q2, but we're right on plan relative to our turnaround schedule. Okay. We just got a pegging toward the end of this year, which we always do in Q4. So nothing has changed.

Speaker 2

We took downtime in 3. I mean we're Yes.

Speaker 3

Okay. So you had a really good quarter and then you took more downtime. That's it. That's the Portion's fine to comment.

Speaker 2

Yes, we still produced the record production and it's not like we cheated and pushed it all into Beginning in Q4.

Speaker 3

Okay. This next question is a little philosophical, but can you quantify In your mind, how IMO has actually impacted the shifting between a charge for oil scenario and a pay for oil? My sense is you're paying less than you might have been if this was 2019 and oil prices were where they were because of IMO?

Speaker 1

Yes. No doubt, if I remember correctly, we talked a little bit about this on the Q2 call. Absolutely, what we're seeing A lower price than we would normally pay for used motor oil out in the marketplace. I actually look at the math and it's $0.10 to $0.15 lower than we would normally pay for used motor oil. There's ample supply, Michael, still out in the marketplace.

Speaker 1

Bit worried with crude pricing shooting up like it is and natural gas pricing going up that We may see more demand in the winter months for converting used motor oil to some type of waste fuel, but we're not seeing it now. We've We've got ample supply and we're getting at a pretty good price. So I mean, we've talked a lot about the shift in our oil segment, Driven by the fact that we think IMO 2020 has helped the business fundamentally and will help us over the long haul. So structurally we've seen the changes and on the flip side of that we were out at the base oil conference last week and lots of Activity around ESG and the desire to purchase our base oil because of the The fact that we've recycled the hydrocarbon molecules. So we feel really good about demand because of the fact that people We're focused more on sustainability.

Speaker 1

So I think it harken back to what we talked about on the Q2 I'd love to see us not have to discount our base oil and I think we're headed that way.

Speaker 3

Well, that'd be interesting. So just so I Understood some of the comments in the script. You do expect some normal seasonality and supply demand starting to be level, but Between the strength into 4Q, the normal seasonality, your comment was, and am I right, That we should be flat sequentially on the spread, so neither expands or compresses in 4Q and then potentially starts to compress again in 1Q.

Speaker 1

Yes, we've seen a little bit of an uptick in spread. We're not expecting much more and that's driven by the fact that We're hitting a seasonal period where demand is lower. But because the virgin refineries are paying more for feedstock, We do expect that they're going to probably change posted pricing if this continues. But net net, we're thinking it's going to be a relatively flat Spread into Q4. Certainly, thanks supply will be diminished because of the heavy fall and spring turnaround season.

Speaker 1

We heard a lot of that last week at the conference. So I expect supply to be certainly muted because of that and that will give us some strength That is in the Q1 on pricing. Okay. And then we're going to we will have to fight to use motor oil side of it.

Speaker 2

Yes. And then you have the operating cost, I think Brian mentioned you got net add hydrogen.

Speaker 1

Yes. Our allocation on hydrogen should be done December 1 is at least the latest report. We had a plant that was feeding our vendor that literally shut down and was the Dental chemical plant in Niagara Falls was feeding our vendor that cost it will cost us some production in Q4. But we're still going to produce 49 +1000000 gallons of base oil for the year, so an outstanding year for us.

Speaker 3

Okay. Your comments about inflation, is that spread over a lot of things or is there one item that's particularly an issue in ES

Speaker 1

I mean it's kind of all over the map, Michael, but I mean as you know we rely on a lot of third We're working hard to internalize as much of that waste as we possibly can, but we're seeing it heavy logistics cost. We're certainly seeing it in our 3rd party disposal cost. We're seeing it on labor. We're seeing it on general supplies to support our customers. It's all over.

Speaker 1

I mean, it's been tough to manage, but we got the price increase over. We should have done it a bit earlier, Little disappointed that we didn't, but we got it done and we're seeing it be fairly sticky as Mark talked about in his prepared remarks. We're seeing at this point 7 plus percent that's sticking right now. So we're pretty happy with what we did on the price increase.

Speaker 2

Another area, anytime you have The commodity complex of steel as far as containers are even on the oil side, the poly containers, all of our containers have been Going up materially, some of them are it's obviously not profitable, but some of them in the extreme are 50% to 100% increase. So Right. It's been something we got to battle.

Speaker 1

Hard to get equipment, Michael. We've had trucks that were parked because we couldn't get sensors. I'm sure you've heard that from other industries. That's beginning to improve. At one point, we had 40 plus trucks down, we're now at about 15.

Speaker 1

But it's been a grind and our people have done an excellent job Service and our customers in spite of all of this, we're a little bit short staffed, but because of the way we Pay our people to get out and hustle and get the work done. We haven't left any work out in the field, that's for sure.

Speaker 3

That's good to hear. And then Mark, what are you suggesting we should do as far as the $30,000,000 divide by 4 and allocate it all into ES predominantly? And at what margin should we add that? Maybe divide by 4 and do the 12 weeks thing in the

Speaker 2

Yes, it's Mostly, yes, there will be a little bit of oil and more of this well in 2 of the 3 deals. There's a little bit of oil collection, but Probably not a ton of revenue from that. So it's mostly yes. Our margins depending on what we see Probably going to be on an EBITDA basis in that 20% range than what we acquired in the low 20s, something like that.

Speaker 1

Michael, we have Some integration work to do, obviously, with any new acquisitions. So I prefer not to give you the EBITDA target. Yes, let us Do our work and we'll get you something soon. Yes, great assets though. And that asset out in California, We love because it gives us a physical asset in the marketplace that we're trying to expand into.

Speaker 1

It has an oil permit, it has a non Consolidation permit as a California has permit. We're going to add antifreeze. We're going to add a hub out there which will cut our logistics costs. That really was more of an asset deal for us and we'll grow off of that business, feeding most of our West Coast branches will begin to start feeding that location and we'll pull product out of that location, which will save us quite a bit of money over the long We've got some work to do to get there.

Speaker 3

Right. You're referring to coal?

Speaker 2

Yes.

Speaker 1

Okay. Then the other one is just like us, they're They're a waste brokerage company, a lot of small to midsize generators and waste is going direct third party. They've got Great technical field services group which will grow out west and try to internalize as much of that work as we possibly can. That's a goal for us across the United So we'll look for other opportunities on the East Coast and do the same thing.

Speaker 2

Okay.

Speaker 1

And then we bought a wastewater plant down in Southeast which has non as consolidation capabilities will do port work out of that location supporting the Miami port area. The cruise lines will recover, so we'll be in a position to get that work back. And then it takes in small quantity generator non as waste, which fits good with us.

Speaker 3

Perfect. So that's a perfect segue. So I was at the EI Digest Conference in late September and Some of the chatter around that conference was that the Heritage Group, which is one of your large shareholders was rethinking their portfolio allocation. To the degree, you can comment on any of that? Or are they contemplating possible sale of any of their assets?

Speaker 3

And would that include you all?

Speaker 1

Michael, I can't get into what the Heritage Group is thinking. I'm not on the Board of the Heritage Group. Certainly, our job is to continue to focus on creating shareholder value. They've been in this deal for 25 years and Great long term shareholder and we love having them as a part of our company.

Speaker 3

Okay. Thank you very much and nice job. It's It's fun to have the wind at your back, isn't it?

Speaker 1

Yeah, it is nice. Once we can get the wind at our back from an operating standpoint, It's tough to be a senior leader of a company these days.

Operator

And your next question comes from Jim Ricchiuti from Needham and Co.

Speaker 1

Hi, Jim.

Speaker 2

Hi, Jim. Hi, Jim. Hi, Jim. How are you guys? Thank

Speaker 3

Yes, most of a lot

Speaker 4

of questions were answered. I just wanted to focus a little bit on the M and A side, because You did allude, I think, in the last call to some additional acquisitions. Where do you stand with those? And Mark, maybe you could talk to whether there was Any acquisition related expense that you feel should be called out either in the quarter just ended or the quarter that you're in now?

Speaker 1

I'll take the first part and I'll kick the balance of it over to Mark. But we're going to Slow it down up a hair just at the end of the year, I think we want to focus on integrating these 3. We certainly have A long pipeline as we alluded to on the Q2 conference call. So we're going to continue to pursue acquisitions with a goal of getting Another 3 to 5 done in 2022. And as always, we're looking for something that could Bring us even more scale, but those are few and far between, but we're pursuing them.

Speaker 1

And I'll kick the business related economics over to Mark.

Speaker 2

Our purely related acquisition costs as we record in when we have accounts In our general ledger, about $250,000 and that would only be most of that would be related to the Coles 1, the other two deals that we closed. If you add it all up, it's probably a little less than $1,000,000 by the time you add up all the legal fees and all that other stuff For those 3 transactions.

Speaker 4

Got it. And curious how long would you guys talk into these folks Before you came to an understanding we're able to close these deals, I'm just thinking about, Brian, as you're thinking about next year, it sounds like you've got an active pipeline. But I'm just kind of curious, just given the environment we're in, Whether folks are a little bit more valuation sensitive here given what's happening in the market.

Speaker 1

Yes, I would say that the 2 deals that were not being managed by Investment Banks, we've had dialogue with both of these companies 2.5 years, I mean that's how long it takes to get the entrepreneurs in a position To be willing to pull the trigger on selling a company that they've grown from more often than not from scratch. So it is an emotional battle to get the owners to pull the trigger. So it takes time to build relationships. They want to make sure that people are going to be in good hands with an operator That cares about employees. So I would say on average it takes us 18 months to 2 years to get these guys to agree to do a deal and then you've got to get it closed and that takes another 3 to 6 months to get it closed.

Speaker 1

The other one a little bit quicker because it was a deal that was being managed by an investment bank and they had A little bit more bandwidth than a typical entrepreneur, so we were able to get it done a little bit quicker.

Speaker 2

And we kind of look backwards. We And the Director of M and A position for a little more than 2 years. So now is the time it sits right with the timeline that I'm mentioning, the 18 months Probably more appropriate, this side worked a little bit quicker on some things because you got to really take out 6 months or so for the pandemic. I mean, we were So I think we're executing fairly well is my way of interpreting against what I think is a great baseline Brian gave us how that part of the business is, you're only excluding your last deal. So we got to keep pushing forward.

Speaker 2

We're going to focus on some integration In the coming months, but after that, we'll turn it loose on getting some of these other ones closed.

Speaker 4

Got it. Thank you. Congratulations by the way.

Speaker 1

Thank you.

Operator

And your next question comes from Kevin Steinke with Barrington Research.

Speaker 1

Hi, Kevin. Good morning, Kevin. Hey, good morning, Brian and Mark. I wanted to just Clarify in my mind the guidance for the mid single digit growth in Environmental Services In the Q4 of 2021 versus Q4 of 2019, is that On an organic basis or are you factoring the acquisition contribution into that?

Speaker 2

I still think even when you do the math, you were kind of in that same range. Obviously, we weren't good to set number, but Net mid single digit growth range would be the answer for I think it would be there organically and then you heard the revenue numbers if you do the math. It's not going to be that much different.

Speaker 1

Right. Okay. Got it. Yes, understood.

Speaker 2

That was the original guidance To do it on a purely organic, being organic will be a little huge. I don't know, it sounds like you define high. It might not get into what Somewhat consider high single digit.

Speaker 1

Yes, I agree. Okay, right. Okay, understood. And You mentioned obviously the inflationary pressures in Environmental Services, but you expect some Sequential improvement in the margin there in the 4th quarter. Should we think though that maybe that approaching 27% goal by the end of the year is going to be a little more challenging than you might have thought last quarter.

Speaker 1

Yes, I'm not going to go there and tell you we can get to 27%. We feel good about it Given that the bulk of our projected price increase is sticking and we've worked hard to make sure the guys Fortunate to have been out in the field because of the inflation that we're seeing everywhere. So we feel good. I'm not going to sit here and say we're going

Speaker 2

Matt, based on where some of the percentages become in, yes. But I'm not going to contradict Brian, just to reinforce. It's certainly possible, but there is We talked 12 weeks ago at least that I'm pretty sure I can speak to Brian that things were going to be a Sorry, I'm not saying that it's been forever, but there's a little more legs to the supply chain disruptions and some of the knock on effects there. So It will be hard work to get that done.

Speaker 1

Yes, we think the inflationary pressure and the transitory issues that we That level stretch and even Q1, Q2 based on what we're hearing from our suppliers. It's difficult conditions out there, difficult for people to get staffed We often make the products we need, which is causing pricing to go up. Right, understood. Yes, Did you give the just the capacity utilization at your refinery? If not, what was that?

Speaker 2

It was 111 percent. I didn't get that. I meant to put that into my non remark. Okay. Yes, I've got another phenomenal With record production, I'm sure you're not shocked.

Speaker 2

But remember that, that is based on an annualization. And you know whatever quarter we take our larger Turnaround and longer, more extended turnaround, which is usually Q4, we got back on that case this year. You're going to expect because if you add them all up, Three quarters so far, you're saying, well, this is a BS number, this annual capacity. Well, it's really not, Brian mentioned, we'll probably hit it. We'll probably be right around 100 For the year, maybe we're a tiny bit higher, but that's still that's why the math seems wonky through 3 quarters.

Speaker 1

Right, right. It will pull back. We expect it to pull back into the Q4 with the turnaround. Okay. All right.

Speaker 1

You mentioned, I think in your prepared comments that you lowered the volume of 3rd party used oil purchases, I believe, by 35% sequentially. I mean, what enabled that? Did you have I think maybe you were Experiencing some logistical challenges in getting used oil to the plant, but what enabled you to lower the 3rd

Speaker 2

I mean our goal in general is to have to build with our 1 automotive or vehicle maintenance focused Initiative, I think we're pretty sure we talked about last quarter. We're using one big part of that is Driving better oil collection and we are just I mentioned that route efficiency. Usually you would expect when you add Several oil sales and service routes, you're not going to come on right away and that route is going to be efficient. Again, we are comparing it last Here to a pandemic low and we had some furloughs and whatnot, but we have these people back and we have missed a beat. So it's basically just And that is in line using the Win With One program and just our other efforts to collect more and have more direct Relationship with the generators have them be customers as opposed to having a third party.

Speaker 2

So having only about 17% of our feedstock That was set into the re refinery beat from 3rd party that might even be a record low. So usually in the summer Quarters are a little easier. I don't expect that they'll hold there forever. But overall, we are looking on an annualized basis to continue to drive that down.

Speaker 1

Okay, great. Yes, that's helpful. Well, great. That's all I had for now. Thanks for taking the questions.

Speaker 1

Yes. Thank you. Thanks, Ken.

Operator

And there are no more questions at this time. Will there be any final remarks?

Speaker 1

No, thank you.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Heritage-Crystal Clean Q3 2021
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