Q3 2022 Heritage-Crystal Clean Inc Earnings Call
Ladies and gentlemen, thank you for standing by today's conference call is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
[music].
Good morning, ladies and gentlemen, and welcome to the Heritage Crystal Clean incorporated third quarter 2022 earnings Conference call.
Today's call is being recorded.
At this time all colors 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 to queue up your questions. 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.
All 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-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 SEC or 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.
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 Dot Crystal Dash clean dotcom.
With us today from the company are the President and Chief Executive Officer, Mr. Brian Ricardo and the Chief Financial Officer, Mr. Mark Devita.
At this time I would like to turn the call over to Brian Ricardo. Please go ahead Sir.
Thank you Brett good morning, everyone and thank you for joining us today.
Half of the entire Crystal clean team very happy to report our record third quarter earnings yesterday, driven by outstanding performances.
And both business segments.
On a total company basis, we performed well during the quarter exceeding our budget from a revenue net income and EBITDA standpoint.
Mark will provide additional detail, but total third quarter revenue exceeded expectations at $172 2 billion, which helped produce a record adjusted EBITDA of $43 5 million, which was up 37% compared to EBITDA in the third quarter of 2021.
Now I would like to discuss our results in both of our reporting segments, let's start with the oil business segment during.
The third quarter of fiscal 2022 oil business revenue was a record high for a 12 week quarter at 65.5 billion, an increase of $14 7 million or 28.9%.
Compared to 54 8 million in the third quarter of fiscal 2021.
The increase in revenue was mainly due to an increase in our base oil netback.
Dollars 57 per gallon compared to the third quarter of 2021.
Oil business segment operating margin decreased slightly to 46% in the third quarter of fiscal 2022.
Burnt a record high of 42, 8% in the third quarter of fiscal 2021.
The lower operating margin compared to the third quarter of 2021 was mainly due to an increase in transportation related expenses.
Kris downtime at the re refinery and other inflationary pressures across the sector, which offset an improvement in the spread between the netback on our base oil sales.
And the price paid or charge to our customers for the removal of their used oil.
From an operations perspective, we incurred more downtime at the re refinery during the quarter compared to the third quarter of last year.
This led to a decrease in production of approximately 2 million gallons of base oil compared to the third quarter last year.
Despite some challenges we continue to operate the re refinery in a safe manner.
As we extended our record of having no recordable injuries during the past seven consecutive years.
Let's now move on to the environmental services segment.
As you are aware, we closed the acquisition of Patriot environmental in the second half of the third quarter.
We're very enthusiastic about the employees we've added from Patriot, we are excited to welcome them to the Crystal clean team we.
We continue to have high hopes of the performance of the legacy Patriot business and platform and provides us to grow our industrial and field services business in the central and Eastern U S.
Our results for the Patriot business are included in our environmental services segment.
In the environmental services segment revenue for the third quarter of 2022.
$106 7 million compared to $72 3 million for the same quarter of 2020 one.
This represents a record high compared to all previous quarters.
An increase of $34 3 billion or 47, 5%.
The increase in revenue was due to the increase in demand for our services compared to the prior year quarter and by revenue from acquisitions made during the second half of 2021 as well as the recent Patriot acquisition.
Excluding the Patriot acquisition third quarter revenue grew by 35, 3% as.
As we experienced revenue increases across all service lines in the segment when compared to the third quarter of 2021.
Yeah.
Environmental services profit before corporate selling general and administrative expenses was 24.8 billion or 23, 2% of revenue.
Third to $17 3 million or 23, 9% of revenue in the year ago quarter.
The decline in operating margin percentage was mainly driven by higher transportation cost costs were extraordinarily high inflation and increased rental cross primarily for rolling stock.
The end disposal markets remains in an oversupplied position and we expect the condition will not improve until mid.
Now I would like to look forward and discuss our outlook for the future.
In our environmental services segment, the third quarter produced a great resolved from a revenue perspective.
We generated double digit organic revenue growth on a year over year basis for the sixth straight quarter.
Assuming the overall U S economy remained steady we expect to continue to achieve double digit revenue growth during the fourth quarter and the legacy Cristal claimed business.
As we move deeper into fiscal 'twenty 'twenty three barring a recession, we expect organic revenue growth to moderate our legacy Cristal claim business and eventually get back to high single digits.
From an operating margin standpoint, we continue to deal with inflationary pressure for many inputs to our service.
Compared to the prior year, such as third party waste disposal transportation fuel containers and other items.
Given that we do not own and operate disposal assets in certain parts of the country or for certain types of waste. We continue to experience increased cost and surcharges for many of our disposal vendors.
We are working hard to counteract that like negative impacts of these items by internalizing more industrial non hazardous waste processing.
While fuel costs have come off their recent highs from earlier in the year cost remained stubbornly elevated.
We're continuing to monitor the impact of inflationary factors are having on our margins and at this point, we expect our operating margin during the fourth quarter to be similar to our third quarter performance.
We still believe we can get our operating margin in the environmental services segment back up to the 27% level once inflationary and supply chain conditions subside.
From an oil business segment perspective, we've already seen base oil prices softened during the early part of the fourth quarter spin.
Specifically spot prices for the type of group two base oil we sell are down almost 60 cents per gallon compared to the average during the third quarter.
This was partially the result of softening demand.
As we get closer to the end of the fourth quarter into the first quarter of 2023, we expect base oil prices to stay lower compared to the past couple of quarters.
On the used oil feedstock side of the business. We have very recently begun to see a slight decline in pay for oil with a dip in the price of crude oil. However, given the recent increase in the price of crude and the typical lag between when the price of crude oil changes and what we're able to drink decrease our pay for oil.
We're expecting pay for oil to be relatively flat during Q4.
From a longer term perspective, we expect to continue to acquire used oil feedstock at a much lower cost relative to crude oil price as we did for the first three quarters of this year compared to before the IMO 2020 regulation went into effect.
We also expect our operating costs at our re refinery to remain elevated on a year over year basis due to the higher cost of items, such as natural gas hydrogen nitrogen and caustic materials.
As planned we were having our longest shutdown of the year along with another shorter planned outage during Q4 <unk>.
These shutdown should total approximately 15 days.
From a profitability perspective due to all the factors previously mentioned, we expect our old business operating margin to be in the 20% range for the fourth quarter.
The outlook I just provided assumes the economy does not fall under recession should these assumptions not hold true this could negatively impact our outlook.
Before I turn the call over to Mark I would like to provide an update on our P. Fast strategy. We recently finalized an exclusivity agreement with two of our partners.
To utilize their phone fractionation technology to remove and concentrate paphos from high volume leachate and groundwater streams.
The concentrated paphos waste can then be processed by hotels in aisle later in it.
She uses heat and pressure to destroy the P fast in the concentrated waste stream.
The combination of these technologies will allow us to provide a turnkey economically viable solution to treat large volume P fast contaminated wastewater streams.
This phone fractionation technology is already being used successfully in Europe .
Currently operating the unit at our Michigan wastewater plant to successfully treat landfill leachate.
What's that Mark will take us through our third quarter financial results.
Thanks, Brian I want to wish everyone, a great morning, it's a pleasure to be with you today.
In the third quarter of 2022, we generated $172 2 million in revenue compared to $123 2 million in the same quarter of 2021, an increase of 49 million or 39, 8% increase in revenue was mainly driven by higher base oil selling prices higher demand for our products and services.
And to a lesser extent by revenue from acquisitions.
Net income was a record high $23 2 million or <unk> 98 cents per diluted share.
The third quarter of 2022.
This compares to net income of $18 5 million or <unk> 79 per diluted share in the year earlier quarter, which represented diluted earnings per share increase of 24, 1%.
And in the third quarter of 2021.
I'd like to begin our segment results discussion with our oil business segment.
All business segment third quarter revenues of $65 5 million were a record high for our 12 week quarter and represent an increase of $14 7 million or 28, 9% compared to the third quarter of fiscal 2021.
As Brian mentioned the increase in net back which is our sales price net of freight charges.
The catalyst for higher revenue on a sequential basis, our base oil netback increased by 68 cents per gallon compared to the second quarter of 2022.
The $10 3 million gallons of base oil sold during the quarter represents a decrease of approximately $2 9 million gallons compared to the third quarter of 2021.
The decrease in sales was primarily due to lower base oil production in the third quarter compared to the third quarter of last year.
From our used oil collection perspective, a route truck loading efficiency increased by two 2% in the third quarter of 2022 compared to the third quarter of 2021. This increase was achieved in spite of the fact that we increased the number of used oil collection sales and service representatives by approximately 11% during the quarter.
<unk> compared to the third quarter of 2021.
Increased efficiency combined with more reps led to a 14% increase in internally collected used oil volume during the quarter compared to the third quarter last year.
The increase between our net pay for oil during the third quarter of fiscal 2021 compared to the third quarter and fiscal 2022 was 30 cents per gallon.
Consciously our pay for oil increased by nine per gallon from the second quarter of 2022 to the third quarter of 2022.
The cost of third party used oil feedstock also increased during the quarter by 35 cents per gallon compared to the third quarter of 2021 on relatively flat volume.
However, on a sequential basis the cost of third party feedstock decreased by <unk> <unk> per gallon. This decrease was made possible by the increase in internal used oil collections I am I mentioned earlier.
As previously mentioned, our re refinery experienced more downtime than expected during this past quarter and as a result produce base oil at a rate of 89% of our nameplate capacity or $10 5 million gallons.
Lower production volume, along with higher hydrogen natural gas and catalyst costs led to an increase in our operating costs at every refinery of approximately 51% on a per gallon basis compared to the third quarter of last year.
From a profitability standpoint oil business segment profit before corporate SG&A expense increased by $4 8 million or 22, 2% to $26 6 million, which represents an all time record.
The operating margin was 46% in the third quarter of 2022 compared to 42, 8% in the third quarter of fiscal 2021.
The decrease in operating margin percentage was mainly due to higher transportation maintenance and labor expenses as well as the higher operating costs at the re refinery I mentioned earlier.
These higher costs offset an improvement in the spread between our base oil netback in our average pay for oil.
This spread increased by a $1 26 per gallon compared to the third quarter 2021, and was up by 59 cents per gallon compared to the second quarter of 2022.
Okay.
Now, let's discuss the environmental services segment results.
Environmental services segment reported revenue of $106 7 million, an increase of $34 3 million or 47, 5% compared to the year ago quarter.
47, 5% increase in revenue was mainly due to an increase in demand for our services compared to the prior year quarter and by revenue from acquisitions.
Revenue from acquisitions closed during the second half of fiscal 2021 accounted for five 5% of the year over year growth during the third quarter and fiscal 2022.
Revenue from the Patriot acquisition during the third quarter was $13 million, which represents 12, 2% of the revenue growth for this segment compared to the third quarter fiscal 2021.
Overall organic revenue from the third quarter last year to the third quarter of this year increased by 29, 8%.
The revenue increase from organic growth was driven by improvement in both price and volume in all service lines.
Environmental services profit before corporate selling general and administrative expenses was a 12 week quarter record of $24 8 million or 23, 2% of revenue.
<unk> to the factor as Brian mentioned earlier operating margin percentage was also negatively impacted by higher costs for rolling stock repairs.
Our overall corporate SG&A expense of $18 6 million represents an increase of $4 2 million or 29, 4% compared to the year ago quarter, driven by an increase in salaries and benefits as well as amortization of intangibles from acquisitions made during the second half of 2021.
As a percentage of revenue corporate SG&A expense during the third quarter decreased to 10, 8% compared to 11, 7% during the third quarter last year.
EBITDA of $41 3 million with an all time record and up 34, 9% compared to $30 6 million in the year ago quarter, our adjusted EBITDA of $43 5 million in the third quarter was also an all time record.
The company's effective income tax rate for the third quarter of fiscal 2022 was 27, 8% compared to 25, 1% in the third quarter of fiscal 2021.
The rate increase is principally attributable to the increased impact of certain nondeductible nonrecurring expenses.
Looking at the balance sheet, we had a net decrease of $48 million in cash during the third quarter of fiscal 2022.
Which resulted in a balance of $25 7 million of cash on hand at the end of the quarter.
The main driver of the decrease is the funding of the Patriot acquisition.
Our primary sources of liquidity for the quarter were cash flows from operations and funds available to borrow under our revolving bank credit facility.
We initially borrowed $115 million on our revolving loan to fund the Patriot acquisition and as at the end of the third quarter, We had 100 million outstanding under this loan.
As of today, we have $90 million outstanding on our revolving line.
During the third quarter, we generated $19 2 million in cash flow from operations and $11 million of free cash flow.
As we work to integrate Patriot entire business at this point, we are on track to realize the cost synergies, we projected and we previously spoke about.
As we continue to pay down our debt. We are also looking for additional acquisition opportunities to drive further inorganic growth for the future.
From a financial reporting perspective, I want to inform our investors and analysts that as of January one 2023, we will begin reporting our financial results on a calendar quarter basis.
To recap we are excited with the strong top line growth, we're generating in our environmental services segment, and we're pleased but not yet satisfied with the operating margin we were able to generate in the Es segment during the third quarter.
While inflationary challenges are also impacting the oil business segment, we remain focused on spread management and improving the operating efficiency at the re refinery during the remainder of the year.
This concludes our prepared remarks, I will now turn control of the call over to the operator to take your questions.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad. If he would like to withdraw your question again press Star one.
Your first question comes from the line of Jim Ricchiuti with Needham and company. Your line is open hi.
Thank you good morning.
Brian I wanted to go back to the comment you made about.
Your expectations for <unk>.
Margins operating margins in the oil business for Q4, which.
Or below I guess, what you were thinking.
Exiting Q2 in the last call. So I wonder if you could talk a little bit about what some of the contributing factors might be to that.
Yeah.
The largest contributing factors back that we have.
Roughly 15 days scheduled in the quarter to do maintenance work at the re refinery and the <unk>.
Second component of the <unk>.
Margin projections are related to base oil pricing.
And obviously with crude oil pricing gone up a little bit in the fourth quarter. We don't expect to see much of a change as you heard in our prepared remarks that used motor oil will be relatively flat quarter over quarter from a pricing standpoint, but all in all its still going to be a good quarter for us at that oil.
Yes, I mean, it is below a ton below.
Where we said but.
I think Brian covered it.
Got it and then just a follow up question. If I may I'm, sorry go ahead, if I didn't mean to interrupt.
Now just a production follow up we're kind of in the range of 13, five to 14 million gallons projected for Q4.
Got it thank you and just on the follow up question just looking at the the EES business.
It looks like you're you're incur.
Encouraged so far with Patriot and congratulations by the way on paying down as much as the data as you have but I'm wondering how we might think about.
Pricing in the broader U S business have you gotten the full benefit of.
The price increases that you put through.
At the at the end of Q2, and what are you considering as you look at the combined business.
From a pricing stand yes.
We're very happy with the pricing we've achieved in all but one of the lines of business, we had double digit price increases part of the story of the overall revenue increase.
<unk> increases is a big part and a wastewater vacuum business, but in parts cleaning.
<unk> waste the biggest part is they are close to half and half, but the biggest part is actually priced. So we believe that we receive that benefit there are some systems improvements, we're going to put in place, which may get us a tiny more but then it really gets into how we think about price going forward because I think most.
What if not all of what we're going to get from those previous increases is already in and maybe Brian you can speak to what we're thinking about going forward for the rest of the year for price and as we head into 'twenty three yes, given our prepared remark comments about the third third party disposal market. We are certainly at an oversupplied.
Position for the sites that are processing industrial waste Joey.
Fully expect to see some additional price increases for buyer vendors that were shipping our industrial hazardous waste.
So we're certainly going to consider another price increase as we move into the fourth quarter, we haven't decided yet on how broad and that will be but we will have another price increase before the end of the year.
Got it thanks very much.
Thank you.
Your next question is from the line of Kevin Stankey with Barrington Research. Your line is open.
Hey, Kevin Hey, Kevin Hey.
Good morning.
When we think about.
Your your.
Uh huh.
Expectation of.
Kind of a normalization of organic growth.
The environmental services segment.
<unk>.
To the high single digits kind of where it was more historically.
As you move into 2023, I mean should we just think about that as well.
Less pricing benefits.
<unk>.
Driving that you know more difficult comps or.
Any other factors you might highlight there.
You know I think from a color standpoint, you had up.
So much pent up demand in the industrial waste market that had led to outsized growth for those of us that could execute.
On picking up waste streams out in the field. So we were able to.
Capture some market share over the course of the last 18 months, which led to our outsized growth. We expect that to continue as we move into Q4 and probably into Q1 until the disposal markets begin to clean themselves up.
Obviously, we intend to hang on to those customers because we're going to service the heck out of them, but we do expect growth to moderate back to a more normalized level and then we are forecasting manufacturing the slowdown with a slowdown in the overall economic conditions. So that's why we are projecting later in the year that will begin to see growth moderate.
And I think you also hit on it obviously the primary thing to what Brian mentioned, but Youre dead right about harder comps, we've been thrilled with what we've been doing but you know almost 30% organic this past quarter's phenomenal and we're in the upper Twenty's last quarter and lower twenties the quarter before that so you know as.
You get into that second half of next year, It's no cakewalk.
We are excited about growth opportunities in some of our emerging businesses I talked about Paphos group, we have the battery JV that we think will begin to gain some traction next years as more and more.
People convert to EV vehicles and.
So we're pretty excited about.
Growth prospects as we look out into next year.
And we will pull off some additional tuck ins, we're not going to stop.
Yeah.
Okay, great that's good commentary.
A couple more if I could here just.
You mentioned that <unk>.
More downtime I think then.
Land for their re refinery in the third.
Third quarter could you just dig into that a little bit more in terms of the.
Factors that were behind that.
Yeah, no nothing nothing really major but we had our normal pegging cycle. We found some thin metal we did some work on a heater.
Which extended the turn around by a couple of days.
Obviously demand has slowed so as you're making a lot of base oil you've got to move it out you've got them.
You guys have read about the issues with some of the additives and the base oil market, which slowed down some of our customer orders. So we had to slow down production a little bit because we don't have a.
Very large tank farm system at the re refinery that's something we're going to look at down the road.
Add some additional storage capabilities. So nothing major just a few issues that cost us some production and you've got the railcar issues too.
Another challenge that again, it didn't really impact that or we would have called it out more strongly but in the business. We've been on allocation hydrogen to so if we hadn't had some of the other issues we might have been talking about that correct. It didnt impact us, but it would have right. So that the specter that assuming that gets resolved.
Can I have that headwind anymore, but.
When that Pops up that is always a challenge and if you guys remember last year, we had record production I think it was a little bit north of 50, we're still going to be in the 47 to 48 million gallons for the year.
And were you know, we just fresh off a board meeting and we are still contemplating expanding our plan at least the front end component of our plan, we have additional hydro treating capacity to blab, we'll see how the market develops over the next year.
Alright, great and then.
Just one last one in terms of the.
Patriot Environmental acquisition early on here.
Can you talk about.
I guess, how quickly you can get that waste capacity that they brought to you integrated in and.
Starting to benefit you in terms of.
Not having to use third parties as much I don't know if it's a.
A meaningful chunk there in terms of waste capacity, but you know maybe just.
So that help can help you going forward and also on your efforts to internalize more.
Just organically.
Our efforts organically or are starting to be very productive and we're on pace right now to process 85000.
Containers internally this year, that's our current run rate.
We certainly have challenged our people to get that number up.
As stated on our last phone call, we want to get into the mid.
<unk> one <unk> by the end of next year internal containers off the 275000 containers, where we're processing and obviously with Patriot. They had to see WTS. We we had to see WTS in the western half of the U S. The.
Patriot Senior leadership team will be running our two sites, we're gonna add vacuum truck capacity out in the western marketplaces to begin to feed those four facilities. We've got the P. Foster opportunity out west so not a lot of drugs that are going to be shipped into the the patriot fixed facilities, we're going to expand that.
Capacity over the next year, but that's probably more of a.
2024 initiative as we get the permits modified and get ourselves set up to push drops into those sites. So that's the ultimate game plan we have.
Ted active wastewater treatment plants today quite a few of them were taking containers and our ultimate goal is to get them all taken containers. So we can cut some of our logistics costs as well as based on our current activity or pre acquisition activity Kevin.
This wasn't so this isn't a big piece dollar wise of what at least from a cost synergy standpoint, the real opportunity. There is is really kind of a revenue synergy because it's a chicken and egg.
We werent as dense and we didn't have as much business out there because we didn't have the infrastructure to support it on the wastewater vac side. So now that we do we can go out and get the business and be more competitive and they're therein lies the benefit from the deal as opposed to Oh, We got all this water already that we're gonna internalize in the western part of the U S.
Okay understood. Thanks for taking the questions.
No. Thank you Kevin.
Your next question is from the line of Brian Butler with Stifel. Your line is open.
Hey, good morning, guys. Thank you for taking.
Thank you.
I guess, let's let's start on I just wanted to go back to the used oil piece of the business and when you think about those margins kind of being more normalized in the fourth quarter and the 20% range.
Is that the right place that you guys are trying to manage that business too. When you think about your ability to price our or two to I guess pushed through surcharges on feedstock or how should we think about that in a more normalized spread environment on what you can and can't.
Managed from a margin perspective there.
Yeah, Brian I think we've talked about.
Mid twenties.
Normalized operating margin.
You know where the market is fairly long used motor oil today I mean, we've.
We've had issues as you may recall years ago, making sure we had enough feedstock in the.
The winter months right now we don't have that issue the market's law and we're collecting now almost all the volume we need to feed the re refinery. So we're confident.
That as crude oil pricing moderates a bit it's so volatile right now that we can drive the price of used motor oil down based on the fact that.
We're seeing long conditions in used motor oil. So we think we will get our spread back as we begin to move into next year you know.
Off the backs of used motor oil as base oil pricing moderates, which it has made as we talked about in our opening remarks down 60 cents.
Quarter over quarter, and we think we can get a lot of that back from used motor oil, but where we're targeting the mid 20 range for the business.
And more normal conditions.
Okay. That's helpful and when you look at that single digit growth on the environmental services.
And our non recession environment.
Maybe if you could talk a little bit what kind of sensitivity do you think is there versus the past I mean, obviously the business is very different than from 2009, but you guys had a lot of headwind in 2009, when we saw recession.
How should investors think about the sensitivity if we are in a a.
A recessionary environment. I mean is this is this you can see double digit declines in revenues and the environmental services business or is this really kind of matured as a business and it's going to be much less than that.
Well you've done your homework because that as I'm sure you know, but for the rest of the people on the call. That's roughly what we experience from the great recession, and if it's aptly named and who knows if the next one if it's on top of us already or imminent is gonna be that deep, but I think your question are kind of lead.
<unk>, two where I want to go which is this is a different business, especially from the environmental services side, we're much more diversified the Patriot acquisition, even accentuates that as far as customer base I mean, generally we're pretty diversified anyway, but we're even less industry set trick now we have even more.
More exposure to governmental or other entities that are a lot of times less affected because they have their appropriations are webcast. So I think that is really the floor scenario barring at really deep deep recession that we should actually trend a little better than what we did in that era.
And if it's a moderate recession than what we had in 2019 as far as the.
Lack of growth or or any type of downturn from the es side of the business.
Okay. That's helpful. And then one last one if I can sneak it in just on the acquisitions and your thoughts going forward can you, maybe just give a little color on I.
I guess, what does that environment look like now I have from a from a availability and in kind of a cost perspective is.
As there are attractive opportunities out there and you become more aggressive if there is a downturn in.
The market for everything comes down a little bit.
Yeah, No I think youre, absolutely right, which is why we are.
Certainly of the belief that we'll get another deal done next year.
Still have geographic holes relative to field services and industrial services, we like South East, we like the Gulf Coast. So we're gonna be aggressive in trying to fill those holes.
We have a 100000 customers currently.
Which they have a lot of project work. So we think it makes sense for us.
To go down this path of internalizing those activities and growing that piece of our business, we very successfully grown the field services business.
All of the work has been shoved out to third parties. We now have the capabilities out west and internalize that activity and continue to grow and we're going to do the same in these other marketplaces. It is going to take very difficult to find personnel. So we'll have to do it with tuck in acquisitions to build the base of the business and then began recruiting off the base.
Okay, great. Thank you very much for taking my questions.
Yeah. Thank you Sir.
Your next question is from the line of Michael Hoffman with Stifel. Your line is open.
Hey, Thank you for taking a follow on from Stifel.
So the questions I have for you our broader you.
You had a record quarter.
You have a diversity of our business mix.
Which proves that even when there's pluses and minuses you can deliver a record for <unk>.
So I get your prudence and giving all of the sort of the things that were tailwind, but are you actually seeing any weakness are you actually experiencing any of that in the context of the customer base.
We're not seeing any weakness currently Michael so we're unbelievably busy to support more struggling to get the work done you know driven by the fact that as you know the industry as well as you do.
The third party disposal sites are still struggling to staff up run seven days a week.
Plant upsets as you know in our industry, we've had incineration issues, which is backed up that waste stream, which we're having to leave out in the field, which is impacting our revenue. So we haven't seen any of it yet which is why.
We're suggesting that the fourth quarter and Q1 are going to look really good.
We've got to temper our expectations as we look out into the longer term future expecting that the market will begin to moderate a bit but we're bullish on the next couple of quarters.
And.
When I think about.
I know you don't give guidance, but the street didn't model in Patriot for the for the quarter. So it was understated.
If I think of Patriot, its 10 million a month that 15% margin for the tack that on is that the right way to think about it.
Yes, not a bad way to look at it you know currently we run a little bit more than 10 million of them off we've got a lot of good things working on the Patriot front.
Okay. So I take that now for the.
Fourth quarter out in that factor, where the street is at $1 36 Street numbers were.
Come in a little bit on the base of the original legacy, but because of what you're saying in used oil the hare, the environmental solutions would be flat sequentially and therefore add in Patriot in them up from where we are and then up in 'twenty three.
Because I get nine months of Patriot or eight months of Patriot.
Plus unless you really think there's an economic downturn early <unk>.
You're going into next year on up numbers once the 'twenty twos revised up.
That the right way to think that they're not looking for that's right look Michael Nobody's, giving us any credit for.
Is this whole P foster opportunity I mean, it's become an even though the regulations are driving it.
These are concerned about how they manage wastewater that has P fast contamination. So we're.
I do think we're at the leading edge of it and probably ahead of a lot of our competitors with our total turnkey package I'm pretty excited about that we certainly haven't forecasted any meaningful revenue for next year, but we've already got currently.
Currently managing two landfills today, managing their leachate treatment or P fast contaminated with the equipment that we have under a JV agreement. We're damn excited about its work and working well.
Alright, if I can squeeze in one last one in.
The comment about <unk> I'm not sure the market gives credit until EPA issues its final rules.
You got them all here, a year and a half the way for that but but the reality is there and you've got a product and technology, but the bigger message is you can continue to delever through your own cash you'll have a likelihood that you're going to be up year over year in EBITDA and even if we do have a recession, you're still likely I've just on a narrower basis. That's the way the street should think.
[noise] about where the stock is that the fundamentals aren't.
Yes, and if I can add one cannot bet one of the things Michael that Brian said about.
And you're guiding to around 20% in oil for Q4 is that the new normal remember any and this is not a new part of our cycle. We always have in one quarter. It's almost always Q4, sometimes it's not but usually it is when you have that extra downtime of that extended planned shutdown, that's not going to be here.
That's got to be idle.
It's a trough, but it's certainly below the mid range. So just intuitively when you hear that that alone forget all the other factors.
The cost things that were deflationary.
Struggles there on that side of the business our challenges.
Always.
That's going to be below wherever our normal is.
Yeah I got it you are not taking out fixed costs, where you do a 15 day turnaround you've got to carry those plus the less lower production. So yeah, that's right, Okay, Alright, alright.
Thank you Michael I don't.
Okay.
Your next question is from the line of Zane Karimi with D. A Davidson your line is open.
Hey, good morning, Brian .
Yes, good morning, how are you.
I'm doing well how are you guys.
So we're good right.
Well first off congratulations on the closure of Patriot it looks to be a strong business with a solid opportunity to expand the base you guys already have but.
Now that being said with the integration of starting how is the process. Dan can you speak to any operational or core cultural differences and then just to tack on now.
Now that you have it under the brand where do you see the most incremental opportunity.
Has anything changed since last time, we spoke.
Yeah, no no real operational integration issues the.
Communication levels been outstanding we have one person that's running the <unk>.
Legacy <unk>.
<unk> Patriot locations, we've got them.
Tremendous relationship with them good operator.
No.
The operating team is excited that we're.
We have the balance sheet to support there.
Growth opportunities from a synergy standpoint, we did reduce some head count.
So what we projected we would would reduce in <unk>.
Added a bunch of our rolling stock and we'll be adding rolling stock that will help them grow the business. So no cultural negatives. So far we have we certainly have a lot of work to do on the back office integration now.
That'll take some time to get through but operationally I really solid run in some of our legacy businesses Communications outstanding So far and then in terms of growth I think we touched on it in our prepared remarks.
We loved the you know, we're not going to be a hard core industrial cleaning business, but we love the industrial service businesses as it plays out with our.
90 to 100000 customers they have issues that that they need help with and now we have labor and people that are.
Very good operationally that can go in and do a long term chartering activities within our generator location. So that's going to be the focus of growth.
Hum.
And thank you for that and just shipping shifting gears, a little bit just to the es business as a whole another strong quarter. It looked like it was driven a lot by field surveys in the parts cleaning containerized waste dynamic there, but can you spend a moment to explain what what tailwind or catalysts on the quarter really drove those results.
Okay.
I mean I just think we're it's the same theme Zane if you look back the last couple of quarters really the two biggest pushes in the legacy side are the containerized waste of course and that was leading the way up until some of the challenge as Brian mentioned earlier really started to impact us I mean, we are literally not in a big way, but we're literally turning some people away for now.
Our have been but it's still relatively strong, but our wastewater vacuum we're starting to get our feet under us and some of the acquisitions that we did a little more than a year ago.
They are we did struggle early on with some of those so it's really those two businesses not that parts cleaning I mean, it's been great too.
Certainly much better than it was if you go back even a couple of years pre pandemic, but it's really been those two business and it really gets back to having a culture and.
At rewarding our people from a compensation level that when opportunity knocks.
They can take advantage of it.
That is the key because we've seen that through.
Macroeconomic issues industry issues different approaches by competitors. The phone is ringing more than it ever has for people, calling us we're used to with our commissioned approach knocking on doors and generating all of that potential market share gains by our proactive approach, but now it's been on that.
Augmented by the fact that customers are not just customers, but generally.
People in the marketplace generators are calling us more than they have in the past because they can't get the service from their current provider.
And when you layer that onto the already strong foundation of that proactive approach that two combined give you a pretty powerful result, which we've seen in 20 plus percent organic growth I don't know, Brian if you see it differently no I absolutely agree with that.
Okay. Thank you for the color there and if I may one more I'd like to revisit how you guys have been working around inflation and how you're dealing with it in particular, particularly looking at your ability to pass on prices to customers. There are a number of price increases during this here, but as you look towards 2023, how are you planning on <unk>.
Managing further potential inflation, how do you believe customer acceptance of price increases has changed since the beginning of 2022.
Yeah, our pricing on average is up.
12% to 15% on each of our segments.
And we haven't had much pushback I mean, there are customers are raising prices just like we are I mean, everybody is experiencing inflation.
Inflationary conditions, we have seen inflation moderate on on just general commodities over the past.
A couple of quarters not on transportation disposal related services. So as we talked about in our prepared remarks, we're certainly going to have to look at another price increase because we expect to see it from the end disposal companies.
Fuel cost operating cost driver wages all of that is continuing to be a bit of a struggle and we're still seeing inflationary conditions. There. So we're gonna have to raise prices again, we expect commodities to begin to moderate as we move into 2023.
So we.
We continue to.
China performed as hard as we can for our customers to make sure they get their money's worth.
Mhm.
Okay.
Thank you.
Thank you.
Yeah.
There are no further questions at this time, ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
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Okay.
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Okay.