Q2 2021 Heritage-Crystal Clean Inc Earnings Call
[music].
Okay.
Ladies and gentlemen, this range.
Today's conference is scheduled to begin short the convenience of standby. Thank you for your patience again todays conference is scheduled to begin shortly please continue the standby and thank you for your patience.
[music].
Okay.
Good morning, ladies and gentlemen, and welcome to the Heritage Crystal Clean incorporated second quarter 2021 earnings conference call.
Today's call is being <unk>.
Recorded at this time, all callers microphone and started and you said and you will have an opportunity at the end of.
The presentation to ask questions.
The actions will be provided at the time before you took you up for a question, we ask that all callers limit themselves to 1 or 2 questions.
Some of the comments, we will make today and for white looking generally the words aim anticipate believe could estimate.
And intend May plan project.
Should will be will continue will likely.
What would and similar expressions identify forward looking statements.
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.
And these include of our idea 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 the school.
Please share fruits of our S.
The original SEC filings, including our annual report on form 10-K as.
As well and I start earnings press release posted on the website for a more detailed description of the risk factors that may affect our results.
Copies of these documents may be obtained from the S. E C R.
S eating the Investor Relations section of our website.
Also please note that certain financial measures we.
We may use of this call of such as earnings before interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA are non-GAAP measures.
The city see our website for reconciliations of this non-GAAP financial measures to GAAP.
For more information about the company piece and we see if our website at www Dot Christoph Bast clean dotcom.
Well, that's the day from the company are the precedent and chief.
Second piece of officer, Mr. Brian The castle, and the Chief Financial Officer, Mr. Mark Devita of Vista.
And this time I would like to turn the call over and over to Brian and Rick Tuttle. Please go ahead Sir.
Thank you good morning, everyone and thank you for joining us today.
On behalf.
<unk> XR of Crystal clean and team I want to let our investors know how pleased we are with the record setting second quarter results were released last night.
We produced several records during the second quarter, including total revenue net income.
Earnings per share and EBITDA.
And several cases are.
Half of the quarter results were significantly higher than our previous record performance.
Mark will provide additional detail of the total second quarter revenue exceeded expectations.
$117.3 million.
<unk> produced record EBITDA of $26.2 billion.
Now I would like to discuss the results of both of our reporting segments.
Typically our cover our environmental services segment first but given the outstanding results from our old business.
The bill to discuss the segment first.
During the second quarter of fiscal 2021, all business revenues more than double and compare.
Compared to the second quarter of fiscal 2020 to $40.44.6 million.
The increase in revenue was mainly due to an increase and our netback for base oil of $1.62 per gallon compared to the second quarter of 2020 and.
And by any 1 cents per gallon compared to the first quarter of 2020.
1.
Additionally, our base oil sales volume of $11.5 million gallons during the quarter was 61% higher and the volume of base oil sold during the second quarter of 2020 and.
And further contributed to our record revenue performance.
Oil.
Oil business segment operating margin was a record 34, 2% during the second quarter.
The higher operating margin compared to the second quarter of 2020 was mainly due to the improvement between the cost of our used oil feedstock.
And the selling price of our base oil along with the lack of and extended.
Ontario shutdown of our re refinery, which occurred during the second quarter of fiscal 2020.
We moved from a charge for oil position during the first quarter of 2021 to a slight pay for oil position during the second quarter as the price for crude oil continue to rise.
We continue to attract.
The used oil feedstock from third parties at fair prices, which helped improve our operating margin during the quarter.
Mark will provide more detail and a few minutes.
Our re refinery team continued to execute well during the second quarter.
And it's been 10 quarters since we've added significant unplanned downtime at the <unk>.
Okay.
We produced 11.6 million gallons of base oil during the quarter.
Which was approximately 80% more of in the second quarter of 2020, we temporarily idled the facility due to the negative demand impacts from the pandemic.
We continue to demonstrate why we believe the rig refinery operations is now stretch.
And with firewall business.
Let's now move on and the environmental services segment.
And the environmental services segment revenue for the second quarter of 2021 was $72.7 million compared to $59.8 million for the same quarter of 2020 and increase of $12.9 million of 'twenty 1.
1.6%.
The increase in revenue was driven by growth and all of our lines of business as compared to the second quarter last year, which was negatively impacted by the effects of the COVID-19 pandemic.
While it was great and see our improvement relative to the pandemic impact of results from 2020.
<unk> of our even more pleased to see that our revenue for the second quarter exceeded revenue from the second quarter of 2019 by 3.6% and this segment.
Our profitability of the environmental services segment increased by 130% compared to the second quarter of last year, which.
We were really impacted by the pandemic.
This increase and profitability exceeded our expectations and demonstrate the potential leverage we have and our route based service model.
Now I would like to look forward and discuss our outlook for the future.
And and our environmental services segment our.
Our growth compared to 2019 is an indication that we have shifted from recovering from the pandemic to be and focused on growth again.
While there is still rest of related to the Delta variant of COVID-19, we are confident that we can operate effectively and continue to drive revenue growth and the current environment.
And we still expect.
Which was submitted to grow compared to 2019, and the second half of fiscal 2021 accident and the year to mid single digit growth rate.
From an operating margin percentage standpoint, we have been facing and expect to continue to face supply chain issues and inflationary pressure for containers.
To get to transportation waste disposal and other items.
We are working hard to counteract the negative impacts of these items by internalizing more of non hazardous waste disposal and we also plan to implement our annual price increase at the beginning of the fourth quarter.
Which is earlier than we would normally do it and the typical year.
We believe at least the portion of the inflationary pressure. We are currently experiencing is transitory.
However, it is unclear of some of these higher costs will continue through the end of fiscal 2021 or even into 2022.
Despite the cost pressure our goal remains to have our operating margin approached 20.
<unk> and percent and this segment by the end of the year.
From an oil business segment perspective, we continue to see tight supply and the base oil market, which has continued to push prices higher and of the third quarter.
While we believe the factors driving much of the supply tightness of temporary we expect strong base oil.
Price and to continue from most of the second half of the year with some easing as we entered the fourth quarter.
For the third quarter, we expect a slight uptick in revenue from our second quarter record based on higher base oil netback.
But with production of near nameplate capacity and the less revenue from from <unk>.
Several of oil.
From a profitability perspective, we expect third quarter operating margin to be and the 30% range as higher price and is offset in some degree by higher pay for oil and inflationary pressures and transportation and the other areas, which I mentioned earlier.
While the fourth quarter should.
Charge from the <unk> operating margin above historical norms, we do expect that the decrease compared to our expectations for the third quarter.
From a longer term perspective, we do not expect the spread between our base oil netback and our cost per feedstock to remain at the level, we experienced and the second quarter.
Continued spread was approximately $1 per gallon higher and the second quarter of 2021 compared to the second quarter of 2019.
And we cannot say how much of the expansion and the spread is do the pandemic related factors such as the indirect effects of lower distillate production at Virgin refineries and weather related.
Related Alex outages from earlier in the year or how much is due to the impact of the new IMO 2020 regulations.
However, we believe that all of the factors of play and a meaningful role and creating the spread we are enjoying today.
We also believe some of these factors of transitory in nature.
As the impact.
<unk> on demand for distillate driven by the pandemic continue the lesson.
And Virgin refineries finish rebuilding their base oil inventories.
We'll have a better idea of what to expect in 2022 as it relates to our oil business.
While we are aware of rising COVID-19 infection rates and certain parts.
Parts of the U S. Due to the Delta variant our outlook assumes that the general economy, we will continue to recover as it has over the past year and then our team will continue to successfully navigate the challenges caused by the pandemic.
Should this not be the case this will negatively impact our outlook.
Sure.
Before I turn things over.
Mark I want to remind our investors that we remain focused on promoting the ESG and heritage Crystal clean.
And we continue to work on the formal sustainability program, we launched earlier this year.
While the foundation of our company was built on sustainability with activities, such as turn and used oil waste antifreeze and waste solved within the <unk>.
Reusable products, we realize the need to create a formal program to better inform our stakeholders and the general public about the sustainability aspects of our business.
We remain on track to reach our goal of issuing our first sustainability report near the beginning of our fourth quarter.
We believe we.
Story to tell and look forward to share with everyone.
With that Mark will take us through our second quarter financial results.
Thanks, Brian it's great to be growth everyone's volume.
And the second quarter of 2021, we generated $117.3 million of revenue compared to $79.5 million and the team.
Have a great deal of 2020 and increase of 37.8 million of 47, 5%.
30, $37.8 million increase and revenue was mainly driven by continued growth and recovery from the impacts of the COVID-19, pandemic, which negatively impacted 2020 revenue.
Net income.
With a record $15.1 million of <unk> 64 per diluted share for the second quarter of 2021 the.
This compares to the net loss of $2.7 million of <unk> 11 per diluted share and the year earlier quarter and.
This past quarter was not only the second quarter of ROE and once we had a record high net income, but net income for the.
The quarter was 64% higher and the first quarter of this year, which was our previous record for a 12 week quarter.
Now, let's talk oil.
Oil business segment revenue for the second quarter of fiscal 2021, we're at 12 week quoted record of $44.6 million and increase of $24.8 million or 126%.
And compared to the second quarter fiscal 2020, and an increase of 28% compared to the second quarter of fiscal 2019.
The increase in revenue compared to the prior year quarter was mainly due to an increase and our selling price of base oil and an increase and the volume of base oil sold minimally offset by a decline in tax the.
Revenue.
Based on that back which is our selling price net of freight costs increased significantly compared to the first quarter.
And second quarter of last year, but it was also up by approximately $1 per gallon compared to the second quarter of fiscal 2019.
Brian mentioned and our increase.
<unk> and base oil sales volume compared to the first quarter and second quarter of 2020 of Batesville sales volume was also up 5.2% higher and the second quarter compared to the same quarter of 2019.
From a profitability standpoint on a business segment operating margin increased $28 million to a record.
Record 34, 2% and the second quarter of 2021 compared to negative 28, 2% and the second quarter of fiscal 2020.
The higher operating margin compared to the second quarter of 2020 was mainly due to the improvement and the spread between the cost of our use of our feedstock and the selling price of our base.
And along with the lack of and extended voluntary shutdown of our re refinery which occurred during the second quarter of fiscal 2020.
We ran the re refinery at 102, 8% of nameplate base oil capacity during the second quarter.
Which allowed us to significantly increase the throughput at the re refinery during the quarter compared to.
The year earlier quarter, which provided improved leveraging of our fixed costs.
From a new draw of collection standpoint, and a weighted average basis, we experienced a net decrease of 47 per gallon from the significant charge for oil position during the second quarter of last year 2 of slight pay per our position and the second quarter of fiscal.
'twenty 1.
Comparing the second quarter to the first quarter. The net change from charge for oil to pay for oil was <unk> 16 per gallon force.
Finally, we increased our used oil collection efficiency during the quarter by 32% compared to the same quarter last year and 12% compared to the first.
Quarter of 2021, despite the fact that we continue to add oil service reps.
And as you might expect the cost of third party used oil feedstock also increased during the quarter.
However, the cost of the feedstock increased by only <unk> <unk> per gallon from the first quarter to the second quarter.
Part of the reason for this modest cost increases.
<unk> 2000 and decline in demand from this material.
During the second quarter, we lowered our third party feedstock purchases by 36% compared to the first quarter.
And 2 environmental services.
And the environmental services segment reported revenue of $72.7 million and increase of $12.9 million or 21.
1, 6% compared to the year ago quarter.
The 21, 6% increase and revenue was mainly due to our continuing recovery from the COVID-19 pandemic with cash.
Turning to the second quarter 2020.
We saw volume increases and all of our lines of business compared to the second quarter of 2020.
And.
Greece was mentioned compared to the results of the second quarter of 2019 second quarter 2021 revenues were also higher.
This growth was led by our containerized waste business with our wastewater vacuum field services and 83 businesses also showing growth.
The parts cleaning business revenue performance was slightly less.
Brian and the second quarter of 2019.
Our environmental services profit before corporate SG&A expenses increased $10.8 million or 129, 6% and the quarter second quarter of fiscal 2020, 1 to a record $19.2 million compared to the second quarter of fiscal 2020.
The increase.
And is mainly driven by higher revenues due to waning negative impacts of the COVID-19, pandemic, which produced improved leveraging of fixed cost.
Operating margin for the second quarter of 2021 was 26, 4% compared to 14% from the second quarter of 2020.
And our operating margin percentage is only 60 basis points.
Kris and all of our results for the second quarter of 2019, 27%, which is also our year end run rate Gulf of this segment.
Our total company operating costs increased $6 million or 8.3% during the second quarter of 2021.
Compared to the second quarter of fiscal 2020, which was mainly.
The higher labor costs, and health and welfare costs transportation related expenses and higher use of our feedstock costs as the result of more business activity due to the lessening impact of the COVID-19 pandemic.
Our overall corporate SG&A expense was $13 million represents an increase of $1.9 million.
Mainly due or 17, 1% compared to the year ago quarter, mainly driven by an increase and share based compensation as well and software licensing fees and travel expense.
EBITDA of $26.2 million was the record and up $23.4 million compared to the year growth quarter.
This was the third consecutive.
Second of quarter of record EBITDA, and second quarter, EBITDA was 59% higher and the previous record from the first quarter of 2021.
The company's effective income tax rate for the second quarter of fiscal 2020 volume was 26, 1% compared to 8.7% and the second quarter of fiscal 2020.
And.
And the rate increase is principally attributable to the opposing effects of non deductible expenses and the projected last year as compared to the projected income year.
Looking at the balance sheet, we had $67.3 million of cash on hand at the end of the quarter, which is relatively flat compared to the end of fiscal 2020, even though we.
Paid off of $30 million term loans during the first quarter of this year.
And our primary sources of liquidity from the quarter, our cash flow from operations and funds available to borrow under our revolving bank credit facility.
We generated $25.1 million and cash flow from operations during the quarter, which represents a.
246% increase compared to the second quarter of 2020, we also generated free cash flow of $19.6 million during the second quarter.
We continue to pursue multiple acquisition opportunities as we look to utilize our strong balance sheet to capitalize on inorganic growth opportunities during the remainder of.
The <unk> 2021 and beyond.
And we currently have 4 transactions under letters of intent and we believe we will close at least 2 of these before year end.
To summarize we are very pleased with the continued improvement we're seeing and our environmental services segment and then we look to move past the negative impacts of the COVID-19 pandemic. We're also excited.
Our execution and the oil business segment, and our ability to take advantage of favorable market conditions.
This concludes our prepared remarks, I will now turn the call over to the operator to take your questions.
And as a reminder to ask a question you will need to price tier 1.
On your telephone to withdraw your question press the pound key.
Standby, while we compile the Q&A roster.
Your first question comes from David Manthey from Baird.
Yes, hi, good morning, Thank you.
How are you.
First question.
In 2018 and 2019 your your.
Segment average daily sales were down slightly from the second quarter to the third quarter.
Would you expect that to be the case this year as well or is as the business gains momentum.
Mentum could we actually see of higher sequential rate of daily sales.
And I think from many of the volume from Mark.
We do have and extra holiday and.
In Q3 typically.
I don't know whether 1 of in the case of back and it came in.
And prior years so.
I don't think we are.
And any material step backwards, but.
It's typically something where you have continued growth on a year over year basis.
The sequential growth did not kind of see anything.
That's true.
Of the pandemic and broker.
Operating from that but we.
We still expect the.
And I'll get whether it.
Low single or getting into that mid <unk>.
Mid single digit growth rate.
<unk> 19, and that's kind of what we expect for Q3.
I would agree with the.
David where we.
We are obviously worried about the inflationary pressure, which you heard in the prepared remarks in terms of margins, which is why we're guiding.
And more towards the back end of the year. After we get our price increase out there for the 27% of run rate, we're going to work hard.
Those wells, we can and Q3, but there is a there's a lot of pressure.
And right now.
Fuel supplies rolling stock maintenance cost Labor third party logistics and it's all over the place now.
Thank you and the.
And when from a timing standpoint, when does your price increase go into effect of the when should it.
<unk> of benefiting you and you say the fourth quarter.
Yes, we expect it to happen.
The effective in October we're going to speed it up a little bit this year.
And because of the pressure that we're feeling.
Yes, understandable and then finally, when you look at the oil business.
What would you consider a good level of profitability before corporate expenses. There it's been wildly volatile and I know when you started this project you ran some Monte Carlo simulations and Youre sort of thinking about what that should look like.
Is 10% sort of.
And light and the sand or would.
And where would you consider sort of an acceptable rate to be at.
And my personal opinion is online to see and from a little bit north of 10%.
We're seeing some fundamental shift of the overall market.
And we talked about and our prepared remarks, we've got the see the ultimate outcome.
And <unk> 2020, but we're certainly seeing the less pressure on used motor oil supply of which we think is going to give us.
A little more pricing power than we historically have seen which should help us both of those margins up a little bit obviously, we expect base oil supply the return to some level.
From of a normalcy by the end of the year and be able to net refineries are now back of normal utilization and theres, a shortage of distillate and we know theyre going.
The produce as much as I can now which is going to increase the base oil. So Brian just as a function of refinery utilization. So we think that will normalize and we hope structurally we will see the change.
Level of used motor oil.
And David we are seeing some positives in terms of the view of our product out in the marketplace as it relates to the ESG and be more people.
Care about our product and have an interest and because of their ESG requirements and we hope and.
As we look into 2020.
And that May give us a bit of a bump on price so structurally I'm feeling better about and certainly north of 10 between 10, and 30 and I'd like to see it up in the 15 range personally and we're working the cost of hard I mean, you see what we've done over the 4 years.
We've driven our costs through mid 80 CPG down.
2 of the 60% consistently so that's helped as well.
Yes, it's all of that.
The couple of years, and our low cost of not having the unplanned downtime.
And thanks all of it.
Sounds good guys. Thank you very much thank you.
Yes.
Your next question comes from Jim Ricchiuti from Needham and company.
Hi.
Good morning, just cash.
The.
And the price hikes and you alluded to that.
And we'll be putting through a little earlier.
And into the <unk> it sounds like in October.
<unk>.
With some of the pricing actions you've taken in the past last year and remind me I don't think there were any just in light of what we're seeing but how does this compare with prior years.
And it's going to be a little bit higher than the prior years driven by the fact.
And we're seeing a bit more inflationary pressure and we didn't do a lot and 2020 because of the pandemic. So.
So we feel like.
We're going to shoot for.
The mid to high single digit.
The number across the board with all of our customers.
Think of the probably ended up being and that 2 million.
And at 300 basis points above what might be that long term average.
What we did price type of thing again, there is debt.
We go out with a prescribed number Jim and you probably familiar with it you probably heard and said before but then there is.
The slightly lower realization rate.
We're getting the specific situations, we'd like to have flexibility.
Not bad debt from <unk>.
Hi.
The same approach for every single customer so that's kind of the effective rate of realization.
What do you want to focus on and I think what I said earlier, it's Hollywood.
And as with prior years.
But we are going to push a bit more discipline.
This price increase and we are doing things system and was Brian mentioned cost control and Thats another area of system wise.
To make sure when we are.
And we're making exceptions and I guess are you there.
And that is something.
Things that.
Everyone has is on.
That makes the people that need to have eyes on and it's not something that everyone's non bartlett.
And just with respect to some of the cost pressures you're seeing a lot of folks are talking about this being transitory but.
And what.
Are you seeing any evidence of that that gives you comfort that this is some of these.
The pricing.
The pressures we're seeing.
And could end up being longer lasting.
And I guess I'll go ahead, yeah, we're not expecting to see and this I mean.
And drag.
And are the 2022, but the problem, we're seeing out in the field even with our.
Current customer bases, they're having trouble with the supply chain and they are having trouble getting staffed up.
Which is causing overall.
Logistics issues and supply chain problems, which is driving up the price. So we.
We really.
Drag even internally. The this is gonna be a problem and we will deal with for the balance of the year and it will start to normalize as we get into the back end of the year.
And get more back to normal next year, we're even seeing and on the disposal front because of a lot of our and disposal sides of struggling to staff up and get back to pre pandemic.
Levels of.
Of operating multiple shifts, but mostly all of that improve as people get to go back to work in September we think the.
Our ability to attract employees and certainly our customers and vendors of bill to get more employees as we get into the back end of the year.
Okay and.
The.
And the Aaas.
And.
Pipelines pretty pretty healthy.
Any color you can.
And then.
The desire to expand the geographic footprint is that still.
The part of the key part of this.
You were talking about acquisitions, you broke out but yes, sorry, that's exactly.
What I was talking about.
The problem.
And certainly our focus as we've talked about on every quarterly conference call as the invested our es business and.
Geographic expansion is a major component of 2 of the deals that we're looking at our west of the Mississippi River.
Because of our lack.
So the and the western half of the U S. So that has been a focus area not to suggest that we're going to pass up on any opportunities of the Midwest southeast South of where we already have had good density.
Actually as it relates to the us, adding some treatment capabilities to our network I think that's been.
And important.
Of that work that we're doing on the cost of goods and services side.
Minimize our exposure to third party and get a handle on our internal processing lab.
The last period, we processed almost 6000 drums internally, which historically we've never done so.
And our focus on waste processing and we're going to.
And the north of 1 geographic expansion most of what Youll happen out west.
Okay. Thank you thank.
Thank you Sir.
Okay.
Your next question comes from Brian Butler of Stifel.
Hi, Brian Good morning. Thank you. Thanks for taking my questions Good morning, Brian.
Just kind of first 1 could you talk a little bit where you think utilization will be in the back half third quarter fourth quarter and when the the scheduled downtime is going to occur.
Yes, we are.
We've got <unk>.
13 days I'll take left on our turnaround schedule.
And we've got a big.
Turnaround, which is R. Normally we do it and the spring and we're going and we obviously posted back because of the.
The opportunities we're seeing currently with pricing so that'll be an 8 day turnaround and then we may have 1 more pegging, which will take 4 to 5 days and we'll get the on the back half of the year. So 13 to 14 days.
Balance of the year, we're projecting Q3 that will produce similar base oil numbers that we did in Q2 and then in Q4 and our current forecast suggests will be and the <unk>.
<unk> thousand 14, 314 million and 300000 gallon range for the fourth quarter, yes. So most of those days.
There are 2 first of all of the largest shutdown, but as you remember the 16 week quarter, So youre going to see most of those down days.
And that's why.
We mentioned and Brian said and until the remarks operating more ads.
Our nameplate capacity because.
So if you look at the last 4 quarters of the TTM.
Of the $50 million, plus number and I and people make the remember Q2 last year as and when we took an extended shutdown and most of that was driven by the lack of demand. So we werent even in the anyway, but you don't really have.
And once a year.
And if you're the shutdown in the TTM right now so you got to remember that.
And we expect that demand continues to be strong.
Through the through the end of the year.
The base oil demand.
Okay. That's helpful and then on yes part of <unk>.
Give some color on kind of what the.
Average weekly branch revenue was exiting the.
Second quarter, and how that compares maybe to second quarter 2019.
Yes, I was looking at that.
And.
It's probably.
Up on a weekly basis.
Probably.
<unk>.
A quarter the.
Quarter 1 million Bucks of week.
Maybe half of million somewhere in between there it depends on the week and looks like that and your sample size, but it's definitely.
On top of the pre Covid numbers and.
Roughly along the same rate.
And that we exceeded revenue in Q2.2021 versus Q2.2019, so it's in that low to mid single digit range.
Okay above 2019 levels Thats right, yes, yes, yes.
Okay and then do you think you think we're.
We're seeing enough recovery and the industrial and industrial economy.
To see a rebound kind of and the field field services sales on the volume.
Yes, we're feeling pretty good about it everything we had and I think the number was close to 20%.
<unk> and field services.
PDP tricky to 6 of the half per set every quarter of and I feel like we're certainly seeing lots of opportunities we haven't landed and he really big projects this year and.
And that's partly because we.
They're tough to manage.
We like the small to midsized projects. So we certainly think of that.
Which is going to continue to recover this year.
Yeah, Okay, and then the last 1.
Brian said more on top of on 2019 already with field services. So.
Okay.
All of them.
And then last 1 just on the circle back on the M&A can you give any any color on maybe the size of the size of the deals you're looking.
And that magnitude wise I mean are these really big really small and the metal.
Yeah, they're kind of small to and the metal I mean, they're talking to the acquisitions, but they are important because.
And they offer of treatment capabilities that we don't currently have and some of these regional marketplaces.
Are these really more service.
The sign of a collector and that service more service based as opposed to assets.
I think there is a mixed bag and know exactly 2 to contain a nice assets. The other service based.
The industrial waste and hazardous waste focused.
So right in our wheelhouse.
And in addition to those that are further.
And the and process so to speak the 4 that we mentioned and our prepared remarks, we continue to Chase center and process and.
Beyond the first stage at much larger ones as well so.
It's like any some of any sales process right.
And then looked at enough and you hope to close.
Certain percentage of and so there's no shortage of opportunity that's for sure the market as I'm sure you and everybody knows it.
And it's pretty hot and as far as the number of opportunities.
And also fairly expensive so.
That's really where the hard work comes in and make sure. If we're going to spend money were doing.
And on the right deal.
Okay, great. Thanks for taking my questions.
Youre welcome.
Yes.
Your next question is from Kevin Steinke from Barrington Research.
Hi, Kevin Good morning, Kevin.
Good morning.
Yes.
So.
I think you've mentioned in the prepared comments that.
You see the Es segment moving from a recovery mode.
To more of a growth mode, given you're now up versus 2019 levels does that imply or are.
Are there any are there any.
Land increases and investments to drive growth going forward now that.
Youre, mostly past the recovery phase.
Yes, I think we mentioned and that we were going to get.
And I think Mark said in his prepared remarks to acquisitions.
It was by the end of the year I think it's going to be 3 <unk>.
And we've got 4 and the pipeline the argon will probably take.
Get it done early 2022, and we're certainly spending cash.
Capital and our Es business.
Yes, I mean, the organic growth we've expanded some of our.
Plant and treatment.
And as <unk> abilities, and we've certainly invested and rolling stock.
Struggle that we're going to have is just getting getting people on board and we think that will begin to improve as we get deeper into the year, yes, and thats the real investment from an organic side and the head count.
EBIT before the pandemic and across the company.
And unusual.
<unk> always been kind of waiting to add that next person and be a little stretch, but more steps of little more than normal.
And if you look back needs of video.
Part of the pandemic cell that the biggest challenge and we hope the.
Some of the conditions that are keeping people on the sidelines are going to subside here and based on.
<unk> development programs and and other factors.
People get more comfortable the.
The Covid thing.
Let me take it away when all of those factors hopefully coming together.
The personnel won't be as big of an issue and then we really that kind of removed the governor on the organic growth.
Okay understood.
You also mentioned the potential for.
The improved base oil pricing, perhaps in the future just based on the.
ESG and the.
Attractive nature of your peso.
And when you've got product in terms of it being of recycled.
Product I mean is that something you're actually seeing.
Seeing and the market or hearing from buyers that could materialize or it is actually materializing now.
Yes.
So that was our hope and 2022 that we would.
Continue to see opportunities because of the ESG, we're certainly going to see.
True base oil price it in Q3, just driven by the supply issues that we mentioned in our prepared remarks and the the overall high demand that we're experiencing we are still seeing tremendous demand for our product. When you think that will certainly.
The continued through.
Q3 and into Q4, we don't know how long its and the last into Q4, but structurally we believe that.
And the market dynamics are changing a bit.
And the results and higher base oil pricing, but thats our hope at this point.
Yes.
Doug.
That's pretty powerful.
And you look at the.
The discounts that we typically and most of the refined ourselves the batesville for we've talked about it Kevin and AD nauseum, whether it's spot of weather posted price.
For.
The low viscosity group 2 and stuff.
And it's meaningful so using.
Moving on par and much less of premium you could.
Potentially completely replace the.
The.
Factors that are increasing pace of price now that we believe are transitory and we don't have a set number but can you talk about the dollar per gallon of difference.
From a couple of years ago.
Yeah the.
The discount that most of them.
<unk> and some of that.
Merge and posted.
And more than that.
<unk>.
And there is a heck of an opportunity of elsewhere and Brian says in 2022 that will become more apparent Tom real debt is and if we can get to 1.
Ago.
And in theory, you would think there might even be of premium because of the scarcity re refined base of our there is much less of it than the total market demand out there even if you got a little better at re refining every single of used oil and gallon the.
And that puts you have a shortage so long term debt.
And there could be something there.
Alright, great.
Lastly, I wanted to ask about.
<unk> had a pilot going.
Targeting some of the larger quick lube changed with your used oil collection service.
And any update on that or.
Color around progress there.
Yes, we're pretty excited about and we rolled it out and the 2 regions. So far this year and we're seeing.
We have seen some success already we closed a few larger corporate accounts deals.
Certainly it will take a look at it on our website, we're pretty proud of the marketing.
And that we pulled together, we're very excited about it and the spirit of trying to.
You've heard us talk about.
Controlling our own deaths of the on used motor oil and obviously increase and our route density of our trucks where the.
1 of the largest AD and freeze recyclers.
We think it's important for us to have.
Can put retail offerings of the automotive accounts and this is the way we're going to approach it and we're seeing success already.
And so pretty excited about it.
Great. Thanks for taking the questions.
Thanks, Kevin.
The direct and if you would like to ask a question just press star 1 on your telephone keypad.
There are no question at this time again, we thank you and I appreciate your interest and participation on today's call. This concludes.
Includes today's conference you may now disconnect.
Thank you.
[music].
Okay.
Okay.
[music].
Yeah.
[music] loans.
Okay.
Okay.
And then.
[music].
[music].