Q4 2021 Heritage-Crystal Clean Inc Earnings Call
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Please continue to standby and thank you for your patience.
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
34.
Good morning, ladies and gentlemen.
Welcome to the heritage Crystal Clean incorporated first quarter 2021 earnings conference call.
Today's call is being recorded.
At this time, all callers microphones are muted and you will have an opportunity at the end of the presentation to ask questions.
Instructions will be provided at that time for you did you up your question.
We ask that all callers limit themselves to one or two 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.
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.
This 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.
Please refer to our SEC filings, including our annual report on Form 10-K , as well as our earnings release posted on our 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 O by visiting the Investor Relations section of our website.
Also please note that certain financial measures. We may use on this call such as earnings before interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA are non-GAAP measures.
Your website for reconciliations of this non-GAAP financial measures to GAAP.
For more information about our company. Please visit our website at.
Www Dot crystal hyphen clean dotcom.
With us today from the company, either precedent and Chief Executive Officer, Mr. Brian The cattle and the Chief Financial Officer, Mr. Mark Devita.
At this time I would like to turn the call over to Brian Vaccaro. Please go ahead Sir.
Thank you Katrina.
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 a record setting fourth quarter results and full year performance.
We produced record revenue EBITDA and adjusted EBITDA during the fourth quarter.
Mark will provide additional detail, but total for quarter revenue exceeded expectations at $169.5 million, which all produced record EBITDA of $33 1 million.
Now I would like to discuss the results of both of our reporting segments, Let me start with our oil business segment.
During the fourth quarter of fiscal 2021 oil business revenues increased 61% to 65.8 million compared to the fourth quarter of fiscal 2020.
The increase in revenue was mainly due to an increase in our base oil netback of $2.06 per gallon compared to the fourth quarter of 2020.
By nine cents per gallon compared to the third quarter of 2021.
Oil business segment operating margin improved 24.7 percentage points to 33, 7% in the fourth quarter of 2021 compared to nine 1% during the same period of 2020.
The higher operating margin compared to the fourth quarter of 2020 was mainly due to an increase in the spread between the netback on our base oil sales.
<unk> paid are charged to our customers for the removal of their used motor oil.
Our re refinery team continued to execute well during the fourth quarter. It has been several years since we've had significant unplanned downtime at our re refinery.
We produced $14 2 million gallons of base oil, which was approximately 10% less than the fourth quarter of 2020 due to the timing of a planned turnaround.
Remember that in 2020, we intentionally took an extended shutdown during our second quarter due to the impact of the COVID-19 pandemic.
In the years before the pandemic, we had always taken our once per year extended shut down during the fourth quarter.
We have now returned to that cadence during 2021.
We're very pleased with the consistency of our re refinery operation has demonstrated over the past three years.
Let's now move on to the environmental services segment.
In the environmental services segment revenue for the fourth quarter of 2021 was 103 7 million compared to $90 9 million for the same quarter of 2020 and.
An increase of $12 8 million or 14%.
The increase in revenue was mainly due to the continued increase in demand for our services compared to the prior year quarter.
We experienced volume increases across the majority of our service lines in the segment when compared to the fourth quarter of 2020.
Oh, it was great to see our improvement relative to the pandemic impacted results from 2020. We were also pleased to see that our revenue for the fourth quarter exceeded <unk>.
Revenue for the fourth quarter of 2019 by 7% in this segment.
Environmental services segment profit before corporate selling general and administrative expenses was 22.8 or 22% of revenue compared to $22 4 million or 24, 6% of revenue in the year ago quarter.
The decline in operating margin.
This was mainly due to the higher transportation and disposal related expenses as well as higher container insurance and workers compensation expense.
Labor costs and staffing vacant positions will continue to be a challenge as we exit the pandemic. However, I am happy to report that our COVID-19 case scale.
Has declined meaningfully as of the end of February .
Last but most important I want to commend our team for achieving the lowest lagging indicators safety metrics in the history of our company. We're very proud of our performance given the tremendous turmoil. The pandemic has caused our field personnel.
Now I would like to look forward and discuss our outlook for the future.
In our environmental services segment, we experienced a great start to our first quarter from a revenue perspective.
Despite the fact that we experienced more confirmed cases of COVID-19 in January 2022 than any previous months' during the pandemic, we still managed to generate double digit revenue growth on a year over year basis for the first several weeks of the first quarter.
Assuming the overall U S economy remained steady we expect to achieve low double digit revenue growth. During the first half of 2022 with slower growth in the second half of the year as we face tougher comparable results from 2021.
From an operating margin percentage standpoint, we expect to continue to battle higher cost during the first half of the year.
While our fourth quarter price increase in the environmental services segment was successful we did not anticipate that the factors driving higher costs in various parts of our business will not only continue but worsened throughout the fourth quarter and into the first quarter.
In response to these higher costs, we implemented additional price increases during the first quarter.
So some of these increases were not implemented until the end of February we expect operating margin to be in the low 20% range during the first quarter with.
With gradual improvement throughout the remainder of the year.
We expect to exit fiscal 2022 was segment operating margin at or close to 27% provided inflationary conditions stabilized as expected.
From an oil business segment perspective, we're happy with the start of 2022.
During the fourth quarter of 2021, the base oil market moved into an oversupplied position, which put downward pressure on base oil pricing.
In response Virgin producers sold excess supplies into the export market and some also reduced production Raj to bring the market back into balance.
From a pricing standpoint, several Virgin base oil producers raise their posted prices in the past few weeks.
These moves are in response to higher crude oil prices.
The supply of dry she moves of stabilize the market going into the busier spring and summer driving seasons.
Demand from our customers remains steady and we expect it to remain consistent provided additive supply improves as we move into the busier spring and summer seasons.
Yes.
While the higher crude oil prices, we will continue to put pressure on our pay for oil. We believe the combination of factors I just discussed will.
It will allow us to generate operating margin in the mid 20% range during the first half of 2022.
Yeah.
I'm also happy to report that our acquisition related activities are in full swing as we look to utilize our strong balance sheet to build on the momentum generated from the two transactions we closed during the fourth quarter.
Our focus will continue to be on businesses and expand our <unk> footprint and operational capabilities.
We now own eight non hazardous waste processing facilities, which allow us to not only treat wastewater, but we also have the ability to consolidate and solidify waste drums of a growing number of these locations.
These capabilities will help offset the high cost of third party disposal services.
Two of our current operating locations will be commissioning drum processes and should become operational during the second quarter of 2022.
With that Mark will take us through our fourth quarter financial results.
Thanks, Brian .
Great to speak with everyone today and.
In 2021, and we generated $515 3 million of revenue compared to the prior year revenue of $406 million, an increase of $109 4 million or 26, 9%. The company's 21 fiscal year was comprised of 253 working days compared to 256 working days in fiscal 2002.
Morning.
On a sales per working day basis revenue increased approximately 28, 5% in fiscal 2021 compared to the prior year.
Kris in revenue was due to improvement in base oil pricing in our oil business segment, along with our recovery from the negative impacts of the COVID-19 pandemic as well as continued organic and inorganic growth in our environmental services segment.
Net income attributable to common shareholders was $18 1 million or <unk> 77 per diluted share for the fourth quarter of 2021. This.
This compares to a net income of $5 3 million or <unk> 23 per diluted share in the year earlier quarter.
Let's get into the details and discuss our oil business segment results.
As Brian mentioned, our oil business segment revenue increased 61% to $65 8 million compared to the fourth quarter of fiscal 2020.
An increase in base oil prices was the main driver in the increase in revenue along with increased revenue as a result of 2021 acquisitions.
Fourth quarter revenue growth as a result of 2021 acquisitions was approximately $7 million or one 7% in this segment from.
From a profitability standpoint oil business segment operating margin was $22 2 million or 33, 7% of segment revenue during the fourth quarter. This represents a fourth quarter record on both a dollar value and percentage basis.
The largest driver for this improvement was 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, which Brian mentioned.
Brian also mentioned the large increase in our Batesville on that path. This increase was only partially offset by a 43 cents per gallon net change and what we charge customers to pick up their used oil during the fourth quarter of 2020 compared to what we paid customers part of used oil in the fourth quarter of 2021.
We ended the third quarter, our pay for oil increased by five per gallon during the fourth quarter.
We were able to sell 14 million gallons of base oil in the fourth quarter. This was down by $2 7 million gallons compared to the year earlier quarter because of a lack of a planned extended shutdown during the fourth quarter of 2020 as well as the fourth quarter of 2021, having one less week compared to the fourth quarter of 2020.
From a re refinery perspective, we finished fiscal 2021 with a record $50 5 million gallons of base oil production.
Based on the performance over the past two years, we officially increase the nameplate base oil production volume of the re refinery from 49 million to 50 million gallons per year. This change is effective beginning with the first quarter of 2022.
Now, let's discuss environmental services.
The environmental services segment reported revenue of $103 7 million, an increase of $12 8 million or 14% during the quarter compared to the fourth quarter of fiscal 2020.
The increase in revenue was mainly due to volume increases in our containerized waste wastewater vacuum and antifreeze businesses as well as improved pricing in parts cleaning containerized waste and wastewater vacuum.
In addition, fourth quarter revenue growth as a result of 2021 acquisitions was approximately $3 9 million or four 3% increase.
Our sales per working day basis overall environmental services segment revenue increased approximately 18, 5% compared to the prior year quarter.
Our profit before corporate SG&A expense as a percentage of revenues decreased to 22% compared to 24% in the year ago quarter. The decline in margin was driven by the factors Bryan mentioned earlier, along with higher expense for solvent.
Well as higher parts cleaning machine costs.
While we implemented a price increase across most of the environmental services segment businesses. During the beginning of the fourth quarter. This was not enough to offset the extremely high inflation, we experienced in this segment during the quarter.
Our overall corporate SG&A expense of $20 6 million increased by $4 3 million compared to the year ago quarter. The increase was mainly driven by higher share based compensation and management incentive compensation expense as well as higher legal fees, partially offset by lower retirement and severance costs corporate <unk>.
G&A expense as a percentage of revenue was 12, 1% compared to 12, 3% and year ago quarter, driven by the increase in revenue, partially offset by higher overall SG&A expense.
EBITDA of $33 1 million was a record and up $14 7 million compared to the year ago quarter. Adjusted EBITDA of $35 $7 million was also a record and represents 41, 1% of revenue and an 88, 9% increase compared to the prior year quarter.
The company's effective income tax rate for fiscal 2021 was 25, 8% compared to 28, 8% in fiscal 2020.
The decline in the effective tax rate is principally attributable to the diminished impact of certain required adjustments to financial reporting income in determining taxable income in 2021 as compared to the impact of those adjustments in fiscal 2020 due to financial reporting income into 2021, increasing substantially all of our financials.
Reporting income in <unk>.
Looking at the balance sheet, we had $56 3 million of cash on hand at the end of the quarter.
Our primary sources of liquidity for the quarter, our cash flows from operations and funds available to borrow under our revolving bank credit facility.
We generated $27 $9 million in cash flow from operations during the quarter, which represents a 27% increase compared to the fourth quarter of 2020. We also generated free cash positive $15 9 million during the fourth quarter of 2021 compared to $15 2 million during the fourth quarter of 2020.
To summarize we are.
Cited with a strong top line growth, we're experiencing in our environmental services segment, and we're working hard to combat the negative impacts of inflation is having on our business in order to restore our margins. In this segment. We continue to be pleased with the execution in the oil business segment, and our ability to capitalize on favorable market conditions.
This concludes our prepared remarks, I'll now turn the call over to Katrina to take your questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone if your.
Question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Our first question is from David Manthey with Baird.
Yeah, Hi, good morning, guys.
Davidson.
Hey, so just a few modeling questions here if I could.
We could talk about the segments in a second but on the corporate SG&A side I think you've historically said that should grow at about half the rate of revenue growth, but there's obviously a lot of.
Unusual dynamics going on.
Near term here, how should we think about that in.
In 2020 to June just escalated slightly from what we saw in 'twenty, one or just if you could give us any kind of a clue into that corporate SG&A line.
Yes, I think thats.
Right across the river.
Again, we'd all I know the management team would love to have the bonuses that are higher than target and some of the other things that we did incur that we mentioned legal fees Bajnai dead and I don't think youre going to have as much of an increase as you might normally have.
What I guess is what im saying is an inflated 2021 number for SG&A.
Okay.
Okay and.
And then speaking of the abnormalities as we look at.
At 2021 .
Environmental services.
<unk>.
It seems like in 2020, you had you had a large project in there you get some some strange parts washer trends.
Is 2021, a pretty reasonable base too to think about.
More normalized growth off then, adding a price increase and getting a little bit of volume growth potentially is or is there anything unusual in 'twenty, one we need to consider.
No I really think we're we're coming at us.
All of these unusual.
And a lot of a pandemic induced but these unusual items that made comparability in this traditional year over year basis. It doesn't really work that much in the last now.
Plus quarters, but we're really beginning with this quarter, we're now first quarter 2022.
Think comparing that to 2021 is going to be a ballot and valuable comparison. So we're planning on from a management approach really getting back into that mode.
Yeah.
David on the two.
I mean, obviously, you've listened to us relative to the prepared remarks around cost structures.
So the industrial business for 35 years I've never seen cost creep like we've seen in the last 12 months, it's been a.
Thank God battle, especially the last six months.
Unfortunately, we will have to do another price increase we have in the first quarter.
Who knows what inflation is going to bring for the balance of the year in terms of additional price increases we're trying not to.
To be so disruptive to our client base and we were already at Expressjet provider, because we deal deal with a lot of smaller cooperative generators. So we want to be careful.
Make sure we treat our customers right way. We know this is not going to last forever. It will stabilize.
So we're not going to price ourselves out of business and we've got to work on the cost side of the business.
D piece of it and we're doing that with that in our own capabilities, but that costs money to get it done and we will reap the benefits after the plants are up and running.
And we can maximize throughput reduced the operating cost.
Mhm mhm, Okay, Brian Thank you for that.
And then finally.
You've historically thought about the es business as being kind of a mid to high <unk> segment operating margin business and I think you used to talk about the oil businesses optimally running about 15%.
Segment operating margin correct me, if I'm wrong on that.
But.
Everything that's going on here.
Ultimately three to five years out is that where we're headed again do you think or is there just too much volatility to even put a pinpoint on where profitability should be ultimately yes.
I definitely agree with your commentary on on <unk>. So I mean, you know where our goal is relative to the margin that's been impacted whenever you're growing like we're growing David obviously, we've had to deal with the issues around inflation thats been tougher, but we'll get back there.
Don't want to get back there or it was a little bit harder to predict.
We certainly feel like we've seen some structural changes in the business, but we're not going to go out and say that our.
Run rate margins are going to look like they do today, we'd say, 10% to 15%, 15% would be a number that we could live with going forward on a day in day out basis as the structural changes.
Become very stable, it's just volatile right now hard to predict the spreads are high in Q1, I mean, the business looks good which by Q2 to be God. We do know that the Virgin refineries are back up and running them and they produced 61.
I mean 1 million barrels last year of crude or lube. So the market's back in good shape post the events of last year pandemic and the severe winter storm. So we know the supplies out there. We do think we'll begin to see a little bit of weakness in base oil pricing as we get to the back end of the year.
But we're still bullish on the fact that we can perform better than we have historically in the oil business so 58% for sure.
Got it.
That's helpful Alright, guys I appreciate it thank you.
Okay.
Our next question is from Brian Butler with Stifel.
Hi, Brian .
Good morning.
Morning, Brian .
Just I guess on the oil business I think you've been talking about it just what are you seeing in the spot market. When you take a discount to the posted prices has that tightened up is there any increased demand for the renewable nature of your oil.
Yeah, we haven't seen any any spot pricing discounts, we've actually sold some base oil at prices above spot.
Certainly at spot or better as what we're seeing now and as we talked about in our prepared remarks, we're seeing pretty good demand on the base oil fraud from our customers, which are as you know more Midwest base. So we're not competing as much with the industrial complex down sell the Virgin to refineries.
And yes, they do like our oil and certainly we're talking to quite a few of the super majors the <unk>.
<unk> cost to produce our base oil versus a Virgin refinery, we're going to.
Try to really quantify that over the balance of this year, but we think it's probably half the energy cost to.
To produce our base oil versus a virtue to refinery.
It's exciting for the Virgin producers to participate in that so yes, there's a lot of attraction to our green base oil these days because of ESG and not just the producers but any of the.
Anyone that's going to be an end user if im finished.
A lot of that story more and more.
Okay.
When you look at the facilities for 2022 can you give some color on the timing and maybe the planned turnaround is that again I think you alluded to it was going to be fourth quarter again, but can you give some color on the core around the quarters.
I think we'll have the normal cadence we had.
Pre <unk> pre pandemic and not too much different than what we had in 2021.
It should be and I'm kind of saying this one top of with Dave.
Minute ago.
2021 is going to be a nice comparable base for us and thats even in flows through to all the re refinery at least planned to when that turnaround youre going to happen when the long run is going to happen and it'll be in that Q4, beginning of Q4 into Q3 timeframe again, we're thinking the long turnaround on being shipped timber.
And we will have our normal normal pegging cycles, as we always do which are shorter turnaround.
So similar cadence as the last year.
Okay, and then on the Es side of the business.
Whats the plan for new facilities is it still that three to four and you talked about exiting.
The year, 2027% margins does that suggest the new facility growth kind of <unk>.
Slows down in 2023.
No I think most of our growth will come from acquisitions, we don't have.
A lot of plans to open organic branches unless it's around a tuck in acquisition.
I think we've talked about that the last couple of quarters, we prefer to.
Open up in new markets.
Where the tuck in acquisition and bolt on or our service lines. It's just much easier in this environment because of the difficulty in recruiting employee staff. It in route trucks from and it's a tough labor market. So we're going to go with a tuck in acquisition route and we'll expand that way.
No finish part of that Bryan is yes.
It's driven by where is our math not as dense and it's in those western areas were most likely to get an acquisition you usually get some logistical complement to that our support with it.
If we're going to do any more greenfield they are more likely to be in an area, where we have the.
The logistical support already.
That it starts to get pretty cost efficient and attractive to do what it's down but it's not given our cash position.
Since most of the opportunities are more or less than what we're going to be doing that acquisition.
And then as we talked about in our prepared remarks, we're going to work all of our own internal processes. We were on a run rate last year of about 60000 containers that we processed internally.
We like to see that number get into the near a 100000 in 2022 as I've talked about the prepared remarks, we have two facilities that will become commercial here fairly soon.
Start receiving drums the permits are in place.
We've got we really need to lower our T&D cost difficult to do when you're utilizing mostly third parties.
And you've listened to their conference calls they have all raised prices quite a bit over the last six months and we've had to deal with it because we don't process a lot of ways. So our objective is to.
<unk> more get get our capabilities built up so we can control our own destiny from a cost standpoint.
Okay, and then just if I can put one last one in just on the bookkeeping side, what should we be using for tax rate for 2022.
I think we've been guiding before I have Brian when we spoke at the 27% number.
Given the outlook for profitability and the lessening impact of some of those.
Permanent items on just a larger income base I'd, probably ratchet it down to 26.
26%, great. Thank you for taking my questions.
That assumes I mean, there doesn't.
Sands.
From 812 months ago, when we all thought corporate income tax rate increases were eminent.
We all think the opposite now so that is embedded in that.
On my guidance.
Yes.
Thank you.
Our next question is from Jim and acuity.
<unk> company.
Hi, Joe.
Brian I just wanted to go back to the.
The comments you made about exiting.
On the Es side with I think you said.
Kevin.
Yeah. This is an environment that you really haven't seen it.
In some time.
Just from an inflationary standpoint, so I'm, just trying to get a better sense as to how much.
Can you do incur.
Increases if we.
It's kind of inflationary pressure.
What's the confidence.
Is that kind of operating margin on the yes.
A year.
I mean, I think we're confident provided an inflation begins to stabilize them and it's very difficult to stay ahead of it when you're having a third party a lot of your your own waste streams.
But.
We talk to the disposal side every day, we feel fairly confident that they're done with their price increases at least near term as.
As we talked about in our prepared remarks, we're raising prices again this quarter, which.
We'll match the price increases that we've been dealing with.
We have the ability with our client base to raise prices. We just don't want to be predatory because we don't think this is.
Gotta be permanent and costs will get back to normal at some point.
We care about our customers we value the growth and we're not the lowest priced provider out there now so we want to make sure we don't price ourselves out of business. So we're going to do the price increase in Q1.
Obviously, we will continue to monitor it.
Be back on our normal cadence for a price increase as we approach the fourth quarter like we do every year and we will analyze inflation at that point and make our decision. So we're confident that we can get close to that 27% number provided we don't see continual inflationary pressure through the balance of the year, because youre always going to have.
That lag to get our price increase out there.
Got it.
You mentioned.
Potential for additional acquisitions.
I may have missed it did you.
Was any of the M&A that you've done recently contributing.
Meaningful contributors to Q4, yes, and whats the pipeline look like in terms of additional M&A as we think about 'twenty two.
Yeah, I'll, let mark talk to the revenue impact, but I'll talk about.
The cost impact.
It's never easy when you do acquisitions and obviously, we have operating standards that we want to make sure we.
For example, one of our acquisitions, we're doing capital projects with the acquisition now so.
Suspended waste treatment to get the capital done so that negatively impacts your cost structure, we loved the revenue side of it and we're seeing tremendous opportunities on the revenue front. That's why we bought the companies, but it does take time to <unk>.
Widen out logistics and cost structure, especially in this market, so probably hurt our profitability in the fourth quarter helped our revenue and we'll get the profitability back as we make the changes of the plants that we were going to make as we bought them. We knew the changes had to be made so I'll, let mark comment on revenue.
From a from a numbers standpoint overall on a combined basis. It was a little more than four and a half million topline that's both segments and yes. It was a little less than four so it was the vast majority up there just a few of them have a smaller oil component in that.
When we look at deals, but again, who knows it may change in the future depending on.
As we get more clarity on.
How the oil market is going to unfold further out but right now our acquisitions are clearly Brian mentioned that I'll, just reiterate clearly focused on the <unk>.
Mineral services segment and related environmental businesses, but when we get the opportunity. Some of these companies also dabble a little Pat on oil, it's obviously, a great fit for us, especially if we're getting gallons, where we're still bringing in a little bit of third party. So it does still have it.
Got it thank you.
Welcome. Thank you.
Our next question is from Kevin Steinke with Barrington Research.
Hi, Good morning, Good morning, Kevin how are you.
Good how are you.
Good.
So in the earnings release discussion here you called out.
On a year over year basis.
Margin decline in the environmental services, mainly due to higher <unk>.
Our instrumentation and disposal related expenses.
You've talked about your initiatives to internalize more of the waste disposal. So.
Do you think that can help from a cost perspective.
Kind of going into the second half of the year and is that something you are.
Factoring into your.
Uh huh.
The target of getting to that 27% margin by the end of the year.
That's definitely a factor.
Yes.
Meaningful it could help certainly 100 plus basis points, maybe a couple of hundred so it really depends on.
Getting some scale through there we certainly have the demand and then when.
When you think of our business.
This is a general trend in the industry.
More and more nonregulated or non hazardous not the record has.
And that fits like a glove with what we're developing but Brian mentioned in his prepared remarks, we expect two more of these sites.
They start to come on here in the near term and.
You are adding some of the fixed cost right away and so you need to fill volumes. So part of it's not.
Not just so much getting having it from a generator standpoint as customers, but making sure we can get it to these sites and start to process. It that way so that to me, though that just a timing issue, we'll get that done and then a run rate basis. That's why Brian made his comments on margin on a run rate basis, we're going to get there this year and we're pretty confident.
But it's a matter of timing when are you kind of get there.
Alright, thats helpful because yes.
It would be a pretty.
Significant boost there.
Okay.
So just any you know I know youre seeing some upward pressure on used oil costs from higher crude oil prices, but just any comment on <unk>.
<unk> 2020, and you know what.
What impact that's having on the market and if you think that's still you know.
Benefiting you and use the use of oil cost side now and over the longer term.
Yeah, we definitely and I think we've talked about this over the last couple of calls.
We're convinced that we're seeing some benefit from <unk> 2020, because the aggregators are not collecting a lot of used motor oil we've had no issue.
With receipts at the re refinery, we've been able to supply volume.
That's been good and if you look at historical trends relative to the price of crude we are acquiring to use motor oil cheaper than we ever have relative to the price of crude.
15% to 20% cheaper than historical maybe even more in certain cases, so definitely have seen some structural changes in the used motor oil market.
Matter of fact, our Michigan.
30 days ago talked about banning.
The burning of used motor oil and asphalt plant, so youre seeing because of the ESG. The greenhouse gas issue that everybody is focused on at least in the current administration and we supported is more and more oil. We think is going to be directed to our re refineries because.
It's a better use of the molecule and people see that now.
Yes.
Going beyond IMO two.
2020 and just.
Overall.
Even in some cases beyond regulatory just an efficient way to you.
Use the molecule just makes economic sense overall.
To move that transaction, if you want to call it that away from this one time use and.
Substitute them with other cleaner fuels.
We certainly saw some pandemic related volume decreases in the fourth and a little bit in January but thats picking back up a minute driving miles are going back up again so.
So we expect the spring to be fine from a used motor oil collection standpoint.
Alright, very helpful and just lastly.
You as you noted you increase the nameplate capacity of the re refinery to 50 million gallons annualized.
You produce I think you said $55 million.
In 2021 so.
Is it safe to just assume kind of a flattish.
Production year over year in 2022 in terms of base oil.
Yeah, we've squeezed every drop out of that re refinery without spending additional capital on it and then the other tricky thing that we have to do this year is we're gonna be commissioning the flare. So we've got some work to do there, but we're still signaling a number close to the $50 million.
Barring any.
Upset conditions knock on wood, we haven't had any as we talked about for three years. So in that range, but we maxed out the capacity of that plant.
Based on our current operations, we certainly as the market as we continue to see structural improvements in the market and we're convinced that the structural improvements or long term, we're not opposed and welcome the opportunity to look for additional debottlenecking opportunities. We have our engineers are.
We've got a great team now that they're working on Debottlenecking opportunities now so we're all going to look for opportunities to expand we're not going to do that unless we were convinced the structural changes are here to stay.
Alright, thanks for taking the questions. That's all I had.
Yes. Thank you.
And our next question is from Gerry Sweeney with Roth capital.
Hi, Gerry good morning, Jeremy.
Mark Thanks for taking my call.
My question was really around the oil side and some of it I think was answered just in the last series, but.
I was curious to sort of the thought process behind.
Expansion efforts at the refinery.
Brian as you said I think youre maxing out capacity and maybe theres, some more debottlenecking opportunities, which may add incremental.
Capacity, but obviously I think we've seen a structural change in the market.
Do you underscored that 15% operating margin.
What would be the decision, making process maybe for larger expansion, but on the oil.
You believe refinery.
Yeah, I think we will have to get through this year get convinced that the structural changes are here to stay and as we move into next year certainly.
The board we were just refresh off of a board meeting and we discussed that exact subject. We're gonna table. It for now and we have a lot of work to do with the plant as it gets.
The FLIR Commission, so we're going to focus on that as I've talked about on prior calls, we're adding a wastewater treatment system to the plant. So we can process commercial waters and non has waste streams, it's adding to our capabilities, we're going to do some other work around the EES segment at the re refinery to.
Promote even more cross selling so we're going to focus on getting that done this year and we'll see how the structural changes play out.
We have the guys working on all the options for the re refinery debottlenecking.
Projects and they will present them to me this year and we'll make decisions around that going into next year, but nothing will happen. This year do any debottlenecking.
Yes, you can tell by Brian's comment that as you look further it's really first let's say, we even got to that point yet.
We can probably we can do things to get more out of that one site and.
That will take us.
The next leg it would be a huge steps removed from even that decision to reinvest that we'd have to greenfield anything.
Got it.
That makes sense and I figured that would be the response.
And then just staying on the theme of maybe expansion and you talked a little bit about it on the es side, but in terms of <unk>.
Creasing the barrel capacity 60 to 100000.
As you look at.
Environmental side, how much opportunity is there to internalize waste across the spectrum.
Well we moved.
260000 containers last year normally processed 60.
And 70% of what we take in as nonrecurring regulated so you could do the math, we have a tremendous amount of opportunities in.
Now the other thing that we have to work on is just the overall logistics.
Around how we move all of our containers.
Because we're kind of in between models right now we have.
Four hubs that you guys are aware of we have the 90 branches, where hub and spoke and back into the hubs. We're looking at opportunities to move waste directly from our branches into the processing center. So we have a lot of work to do over the next year on logistics, but our intention is to move as many of the 70% of the 260000.
Drums, and our system as we possibly can and we've increased our capacity.
We're commissioning two additional sites now.
We own and we're just adding capabilities to them, we know how to process waste.
So we will get it done and I think we can hit that 100000 number by the end of this year and just keep growing it.
And then I'll take the <unk> benefit that's going to come from it as we get deeper into this is really working the logistics angle as we move into 2023, it's not something we'll do in 2022, but once we get the drums route it will re look at how we operate the hubs to.
Got it that's helpful I want to start optimizing the cost side of our business as we move into this year, we've been very very focused on growth and permit changes in capital projects and getting these plants up and Robin.
We've got to get them optimized this year.
Got it.
The follow up would be and this is just more out of curiosity than anything as you sort of grow some of the.
Your treatment capacity is there an opportunity to even.
Do that for some outside players to increase leverage or speed up the process that we're going to absolutely we're doing it now.
Got great partnerships with our third party TST enough talk about I would say, Brian I'm sure you'd agree we're just scratching the stall yeah. So.
We've proven we can do it.
Just a matter of taking our typical sales and approach hasnt been geared towards that part of the market. So we have great experience and more of that as Brian would say kind of retail space, but it's just getting in by.
The evidence that we're doing it a little bit we're starting to do that in there.
Fair enough upside.
Got you so that's been a great great partnerships because we're.
In turn brokering the that has waste our third party TST up partners.
I can deliver or not as they can pick up as is going to leave in our plants.
We like to sure we like the strategy.
And look we're looking at emerging markets two of them they were.
Very tuned into the battery business I mean for us as a group.
Growing opportunity for us that we're going to we're looking at very hard.
Got it.
Perfect I appreciate your time, congrats on a great quarter and thanks again.
Thank you very much.
And that is our last question for today's speakers. Thank you.
Hey, guys.
Thanks, everybody. Thank you.
Youre welcome ladies and gentlemen. This concludes today's conference. Thank you again for your participation and have a wonderful day you may all disconnect.
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