HCCI - Earnings call transcript Q1 2019 | Heritage-Crystal Clean, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Heritage-Crystal Clean, Inc.

First Quarter 2019 Earnings Conference Call. Today's call is being recorded. At this time all callers microphones are muted, and you'll have an opportunity at the end of the presentation to ask questions and instructions be provided at that time to queue up your questions. We ask that all callers limit themselves to one or two questions.

we today comments forward-looking. the of will are make Some would estimate, anticipate, may, will Generally, identify result, aim, could, statements. continue, similar expect, forward-looking likely be, the words will believe, intend, expressions should, plan, will and project, and statements cause that from anticipated actual These statements. forward-looking materially could by differ uncertainties these of to a number those involve risks results These are beyond which risks some factors, of and uncertainties of include control. a variety our our on views as of today you them These as rely representing the forward-looking speak statements in should and future. not We update call. undertake statements these obligation no to after this report refer Form our SEC Please our our filings, to posted release as including website. on our as annual on well on XX-K, earnings

measures For Investor note that affect financial depreciation the our call, obtained a as these reconciliations factors please of from risk copies non-GAAP taxes, Relations earnings website. description or measures Also, use to interest, are may website EBITDA that for the measures. before by visiting or adjusted GAAP. be this section we our SEC non-GAAP may financial and more our see on Please amortization, such the may of detailed and of certain results, on these EBITDA, documents

call company, At us this our Officer, time, I'd are DeVita. please to about at to www.crystal-clean.com. Recatto; Recatto. website over and the With Brian ahead, Brian Mr. sir. information more President and For Officer, Financial today Mark Mr. our company the Please Executive from visit the Chief the go turn Chief like

Brian Recatto

morning. XXXX our quarter and welcome results. Yesterday, us to we you, everyone reported this Thank joining first

performance. we a a $X.XX quarter the first in segment during share increase to an million of basic a to we the would compared XX.X% I loss revenue share growth basic first of quarter quarter standpoint, a probability compared Environmental discussing quarter by our per From first Our quarter to $XX.X per this Service of to XX.X% represent of of loss deliver compared the excited recorded were in XXXX. like able start of From XXXX. first standpoint, the of segment revenue $X.XX XXXX. I'm to

Our quarter, and fourth contributions business represents revenue is all of of which achieved our first a in we straight quarter record segment. This for growth. the of double-digit service from our produced performance by a revenue XX-week result in is it all quarter this -- lines

of in less resources we While quarter the adding we during sales additions first in XXXX, aggressive this to service of impact were XXXX the and new still saw compared XXXX an year.

from added with the XXXX the Specifically, was during associated resources approximately $X.X and new in $X.X generated incurred during approximately cost branches XXXX million million, which revenue. we

plan the XXXX, we to more sales compared addition and last year. of service be aggressive with resources During new to

We to also new add branches plan during approximately XXXX. X

and million the expect For first of to $X.X year. million new add cost resources during and year in while collectively XXXX, full and XXXX, approximately service in in resources incurred sales the approximately $X.X cost million Through generating in $X.X the quarter $X.X added operating we million revenue new for the we branches revenue.

first a standard. quarter shortly. its the to points and XX.X%, XX.X% same of the but the the of in impact year new adoption margin down Environmental Our business leasing the quarter basis standard will due on XXXX impacted in negatively Services operating XXX approximately was accounting new discuss was by ago, from Mark our

sold, price The Moving the partially decrease revenue a driven increase XX% were revenues Oil of oil. or by fiscal on oil the million of in an of increase first up offset quarter of Business base first fiscal XXXX, our quarter in XXXX. was Oil selling in to $X.X the In base by to the compared Business. our volume gallon

compared gallon fourth to compared per netback the by $X.XX oil last decreased gallon during quarter per XXXX. first quarter the base year to of $X.XX Our and

quarter, to compared year the During same ago. quarter increased oil the a XX% first base almost by production we

re-refinery, failure we downtime, mechanical at limited which to due incurred However, even our unscheduled our greater opportunity improvement. for

side, of issue. upgrades to mechanical and of continue to we'll the re-refinery. source address the additional mitigate the we repairs at metallurgical make the to And On positive risk equipment completed the issues

and a in weighted $X.XX our for we as compared still was per to While our began gallon first oil position we compared a during charging most net quarter and quarter, pay discipline the our per improvement improved first used $X.XX on were of customers service the pay the average whole. quarter quarter the net slight first for XXXX oil a oil during basis gallon in the for quarter of The for to our year. fourth local collection basis, last on a average

opportunity profitability past XXXX impacts quarter of analysts IMO the regulation portions our in we continue spreads at initiative have operation and widen significantly to our second feedstock cost will during feedstock and and one us mid-March should during provide quarter. finished to spread the return oil forward, product in the of base April. to We our first us the already Improved with the the we provide oil to price Looking to discussed the expected improve spread. in the seen both early should quarter. believe These another consistent and second increase a the increase increases and this compared re-refinery investors base opportunity to

of the of exact effects While seeing the we to from certain IMO not we these XXXX timing or as prior to anticipate XXXX, are impacts. magnitude the end

Also, momentum, augment operating that XXXX continue for performance. year standpoint, for a will to our will continue support first will we the adjusting growth organic more XXXX, perspective, our operate the efficiently to look percentage in work on impact quarter. we XX.X% to exceed accounting detail. now, pleased us Service of expect organic XX.X% of we acquisition and after and margin now additional our re-refinery earlier closing financial our the see was our continue Mark we will during manage by the first walk lease single-digit implementation to growth XXXX From through operating standard, quarter believe new during From were effectively. high the results hard to quarter our compared we spreads in segment For the Environmental which opportunities. to margin we an profitability

Mark DeVita

segment. Thanks, Environmental Brian. Services Beginning with our

containerized $XX.X revenue, quarter. both parts in have We year-over-year cleaning not basis business, First strongest growth. a record businesses. implementation In for and lines during an product in and quarter million. of revenue and first on the with volume additional lease our growth would growth all were our been generated a If we in have revenues vacuum service experienced our the rate waste the standard, growth $X.X antifreeze experienced new million price accounting we the the XX.X% would and

antifreeze While we first the we in was million recycling containerized year-over-year acquisitions The on Same antifreeze antifreeze experienced made XXXX. from waste, business revenue services businesses. primarily vacuum our Revenue quarter. strong first grew approximately to volume and XXXX increase due the volume these acquisitions gains approximately the quarter the in during growth in basis by XX.X% quarter. first in was of a during $X branch driven revenues

the to we new branch leasing way Excluding increased now adjustment of same The the of of component year-over-year change lease basis. with new the under standard sales accounting will new on recognize rental caption, the standard. our lease some services, a revenue for parts a have which on lease the cleaning revenue to income. the The of income related contained the cleaning our necessitated onetime XX.X% impact appear would service implementation associated our parts an the approximately under statement standard, embedded

portion time fiscal quarter we fourth these the XXXX, assessed to customers and services, on stretched service, to of in the of recognizing assessed services term charge the of some into fiscal we service of at during the are of the charge customers the the of For these XXX% XXXX, revenue though our XXXX. of recognition length even of recognize our the Beginning term. deferring a based

will second defer the as invoiced a the the example, the a recognition we revenue charges assessed of to the will of of quarter revenue our second For portion third in the customers the during charges to recognize in portion customers quarter. And we until our for quarter. first quarter,

accounting first standard margin, compared allow adoption in While impact first the over. before at the is the last we Profit $XX.X The change of portion the year. was increase quarters, the year-ago immaterial not lesson to as quarter. $X.X a to onetime impact decline us representing results to SG&A in expense recognize in of in the a from the quarter Environmental X percentage quarter million, in end million charges but assessed an customers the quarter first future of revenue of expect because did corporate this Services segment the point be operating reflect to

reported the the of quarter XXXX. which in operating been of due deferral Services to Excluding an accounting onetime the Environmental million million standard, have first would've the new approximately of lease $X.X to compared we the $X.X segment implementation would XX.X%, increase of revenue margin

As Brian year, in Oil pricing. to decline mentioned, first quarter Business the in segment was base last revenue quarter despite in the oil same the compared steep up

XXXX. re-refinery compared me, oil in expectations, our of capacity our below XX was the operate to XX% quarter the of able While approximately excuse at first -- XX% to base approximately

the base improvement last in in in should of oil first for pay costs earlier. quarter first XXXX. gallons the the mentioned increase sales Business during production gallons driven quarter of margin produced price subsequent XXXX. spite and first Profit remainder year. fell to we year, of million decline Oil of XXXX The corporate provide Despite us in X.X first during compared the the in segment pricing sold selling in as of base approximately our X.X negative for base oil re-refinery Business the oil. oil at first we in $X.X margin feedstock steep resulting XX we standpoint, compared quarter XX.X%. of million percentage XX.X quarter of SG&A XXXX, the operating oil the first the million million to the to operating mainly a Brian of by per the the compared points The first this additional X.X and the rates higher was quarter and decrease spread million operate result During confident before From quarter the compared improvement the base gallons between XXXX can the decline we at segment almost quarter quarters, gallons during the are in during re-refinery to expenses decreased the in to fiscal of by Oil in occurred

from SG&A fees accounting as XX.X% of standard driven professional overall a offset revenue, discussed implementation revenue service by lease were fees mainly to expense flat remained retirement higher professional and of percentage corporate earlier. costs. The at due the the year-ago services higher quarter, mainly new Our higher the by

of sales the quarter to would compared and If to the first having XXXX. severance-related quarter attributable rate tax XXXX. impact you company's SG&A remove with income principally The first of on as fiscal XX.X% first and rate percentage quarter of rate stock in past XX.X%. The lesser effect fees retirement fiscal is approximately XXXX effective quarter the compared first of a been was costs, the expense XX.X% have tax difference benefits the of for this tax compensation to associated fiscal the in windfall the quarter these a

$X balance onetime partially EBITDA quarter at steady first in a to of discussed the million quarter The of compared lease million the on was million at $X.X the $X.X $XX.X the underlying revenue. in higher ago. debt in earlier, compared the was operating the stood million to of year-ago at XXXX. end EBITDA first perspective, quarter hand Total decrease for $XX X quarter First due by year-over-year. primarily quarter. adjustment From cost Adjusted million $XX.X to EBITDA million $X.X to and year overall higher accounting was offset compared impact the sheet remained million cash

cash quarter, million generated $X.X from first operations the of XXXX. quarter in in net to outflow a first cash million the $X.X During flow compared of we

As of first quarter acquisitions earnings during fourth the mentioned we our XXXX. during closed X quarter call,

We also the beginning closed X additional quarter. of second the acquisition in

than recent revenue $X million initially less this acquisition of will annually. most add expect We

and a business pleased to with work we quarter which our are Environmental our very segment, significant Business results will revenue probability continue and the a will from XXXX. with the our that, questions. your the in of for And I operator remainder multiple for We drive both Services we feel shareholders. the Oil value turn help call And we expect the first In in over summary, to profitability take our opportunities in on improvement improve to segment standpoint.

Operator

[Operator Michael comes Instructions] with Stifel. Hoffman Our from first question

is line open. Your now

Michael Hoffman

Hey, for thanks, the guys taking questions.

Brian Recatto

Hey, Michael.

Mark DeVita

you? How are

Michael Hoffman

lesson. lesson you good, the accounting but there, with recall hate I that anyway. Hey, good. not to can't point I the to complain to repeat ask

am out week what and in XX get I going it's because, that What's to the XQ three. in think happens and It's, something be XQ? and recognize to supposed better, XQ I got period. of Just XX rental assume I trend follow and I didn't Did if another to therefore I correctly? XQ it's

Mark DeVita

Yeah. Yeah.

will service So for and rental will were start every revenue part well, quarter correctly, the to we only that, forward every defer to have quarter to able be, income now going made previous QX all charges on the be the we customer. that the that you difference did in fact of we don't recognize in is, the see, based will

are intervals last usually a than service longer months. a they Our of week, couple

which recognizing any from we'll previous just So revenue some of basically the so be on quarter average, quarter. in subsequent

aren't some invoice defer revenue but So stuff of the an to those recognize and numbers put quarter charge that the and from we for, on we'll allowed as customers anymore. pull in prior

Michael Hoffman

right. All

So, this, XQ is I XX XX growing organically, then point if just if what be you by XQ organically a to will in you're grow and described. XQ following definition and then the starting into I'm continue bigger

Mark DeVita

quarter going and big. year Every to Yeah. be is

Michael Hoffman

Right. Right.

And wanted I revenue? rate pattern All make revenue or I the be would correlated underlying here. growth just to the product rate the sure that to growth service is Okay. Then, organic right. the of understood

Mark DeVita

Of the service revenue.

Michael Hoffman

quarter, just us sparse And then the you growth between contribution within and in the could deal difference Okay. organic ES. for

Mark DeVita

about was the contribution in Yeah, quarter. X%

Michael Hoffman

the Organic made rest. up

Okay.

Mark DeVita

Yeah, X.X.

Michael Hoffman

Okay.

X% with organic that's And ES of, the the so the organically. underlying X%, a can for the is you while in that's sustain X% that's what's growth comment Brian's approximately consistent left,

Mark DeVita

growth leasing if the you bit, kind that. little of the standard Well, from add up a we would at it mix and XX% overall, look you it but then subtract

higher. actually you're So

Brian Recatto

we're single-digit of But organic kind high now. where we'd Michael are signalling right we like the, growth. Obviously that's be still to

enter we as year. tougher get comps Our the

Mark DeVita

Right. growth last running Yeah. double-digit you're Because year.

Brian Recatto

right We really Yes. good Lots of, money. about lots feel of it now.

Michael Hoffman

the have It's level one then, that a so seems which of just great business And what... to you sometimes. brings to issues

Mark DeVita

Yeah, keeps where no whole this that's at up doubt. night

Michael Hoffman

Yes.

there much there burned in mechanical, what's years to there water. the happening? mean I fast in was happening was So a and issues was it feedstock-related -- is mean, where something But you so few what's through too or plant that the catalyst broke? last I period this

Brian Recatto

been production not Michael, of lose year since let's around. Yes. we increased sight every the that fact I've have

metal a change the We and not helping heater. in We turnarounds. capital upgrading Nothing's issue of And there. make going -- equipment We've right going are our spend last weather. of money that that project down in to was extended a calls. resolved about our we to certainly failure It changes. for it that project. phone make the and And as going But It -- been issue. All the spirit going construction we've So talked we're a on the not -- we're The a had of to got be power larger catalyst, we going to a now. reliability improve of that's plant. temperature severe get We've XX we've philosophy. it's days was us to XX sounds not we're these do certainly contracts was for to focus big singular it other us. like yes, plant we've life to plant. because construction lot we've to was it mechanical everything had trying a the This in of our year. it and a reliability our some brutal on catalyst metallurgy on this got a within during going QX consistent. winter It more tube year. And in We're year, third-parties mechanical. want in change We're We to really program blame issue. out our have expands the and spend robust.

focus did and have right feel work The well. other failure back the did now, that really we up great. is the that's and up. and tube spread the plant So some we to We've a we our period. replaced got We it during We the got we about wasn't reliability improve process sped to running running. could that good continue Right now. have tube, But plant.

Michael Hoffman

Okay.

to the the but for So on weeks? the thank And what's PFO CFO you how spread, the you XX the as to insight for in sharing the did start of weeks exit average, XX the CFO? far as second that trend

Brian Recatto

demand we going. And slight at what's than [indiscernible], very and sanctions still but pretty seen given still Obviously, a haven't on pressure -- going where are charge. the we And feel a in in on CFO, is index, fact our corporate well, Venezuela, to WTI, by WTI today. we'll as what exited going have given charge for there's it do, demand of charge WTI. driven Obviously, expected charge. the -- that. it's have index we that we some go bit we've higher HSFO the a crude very, keep still tied certainly, good we grinding do to We We we're Iran. little got the and it, pretty that worry priced WTI we some about for are accounts see A in so up, high-sulfur there's

Michael Hoffman

base would the Okay. based the And is plus charge done spread on you oil sequentially? how what frame where has now

Brian Recatto

a $X.XX is we QX. What to my in heard Yes. And -- oil hope. in see bump our $X.XX has -- the you we seen quarter from base prepared nice $X.XX remarks,

Michael Hoffman

sequentially? improvement the Is incremental

Brian Recatto

Yes.

Operator

And Blair. our with Ryan next Merkel question comes William from

Ryan Merkel

ES wanted with the off start to So I business.

that the message? should year? about margins our Or talked of be some did the I'm that investment. the for we hear I tempering wrong? You Was wondering, rest

Mark DeVita

No.

about same is as quarter. last our what I think we talked the outlook

'XX, 'XX, more it's a from given of we as on see that those plan what going still As margin we've the second margins. revenue general than is. anyway. new half resource And But our our have want towards stronger to like from we with far we typically to the adds goes, guidance stick the weighted be with year standpoint,

Brian Recatto

change I it Because that could Yes. and adding more branches some only keep this And is time that. and acquisitions, some targets money lot agree that pushing opening new resources of to of sheet, growth profitability. we obviously, to those so with thing balance going grow up quicker. on a got The level if absent to of on get period get to branches takes we've aggressive the thing. we're

Ryan Merkel

And then with ES. sticking

then, I you're run rate single-digit think X% about there's impressive. pretty I some year, talking opening or sort estimate what a And is organic as know branches? and anything the is hiring of do doing? as there you're to the you that, is a good is which high growing? else as there. price folks But in this follow-on simple market outgrowth just Or

Mark DeVita

just for in strong canary see tailwind, us, you couple print. the as think. in overall tackling, and organic them. new the traditionally economy I can and And an that's think general opposite a business the general if is And of a see, far opinion. more From at indices sites. a the blocking just QX, and been Ryan, stage whatnot, our as adding in as and the for that some the But of we for it that, Brian coal the to I new his branches next of the on, them market, kind I continued you GDP adding And longer especially general, of get give standpoint, early tooth, have pretty think, we followed you've the marketplace as adding services mine producer basic of need in positions we're then price little lines least quarters.

leaned maybe enjoy at close So least that support, to I continue think to a we little. it

Brian Recatto

in there. still going talking I'm we're obviously, Yes. seeing certainly In But to not mean, out is we're economy good market not growth. seeing pretty our I disagreement. branches, robust. the conditions manufacturing

in we GDP. And that's do with, -- production they're business all our of for been Some plant good that people us.

of signs slowdown, but not seen see haven't now. to a that XXXX, any we of maybe or in some So expect

Ryan Merkel

Oil on lastly just And then Business. the

full Just it have may in I said operations at can the might Could this mechanical it. X hurt quantify have shutdown You clarify, back then the much you are the And point? how quarter? questions. to EBIT missed you but you

Mark DeVita

headwind But Brian, Basically, I QX running that part year. we're for that think if this chime most wants. had as in the predict. we're yes, QX -- can we last we've would year we he had in in same

to, be. that I So was might headwind the normal in guess, quarter of if X% a what type it plus you quarter compare

Brian Recatto

In million for do that. for terms on lost roughly production, QX targets. we the you on and gallons could QX And of in we're of our production, X plan production math

Operator

Kevin [Operator with Instructions] Our Research. Barrington next Steinke question comes from

Kevin Steinke

the on Just following last question there. up

of mechanical You production lost million gallons X said issue. you from the

out strip percentage out been do on the think segment I you've able maybe have been? hit. you of that of margin, it impact specific terms margin would in past that the Are if to able oil point in separate we to XX% what business negative the

Mark DeVita

get there, Yeah, what But the more is told on we I impact. can granular offline. basically Ryan

Kevin Steinke

Okay.

a having do refinery about tweaks talked the you've so at some other upgrades and -- wanting to... And to

Brian Recatto

process really metallurgy, really upgrading very with metal, the of not at happy just were it's replacing We the process It's this metal. point. the -- related some

Kevin Steinke

do to question do. -- have Okay. my things you I guess is, those does

'XX higher but you shutdown to XX shutdown is tweaks what target mean as is a year, we I be real? or in a time days make XX is it should not to Your expect little

Brian Recatto

No not our time we changed have schedule. around

fall shutdown, just going We shutdown longer at of to have upgrades do the then That and just changed we're our issue. as May us. We'll do a year. we for project have the the normal a absent end cleaning has other any shut-ins, normal --

Kevin Steinke

QX to normal modeling, be of So QX? if you're kind would it a

Brian Recatto

exactly. Yeah,

Kevin Steinke

not obviously All it. Got QX right. But normal. was

about continue XXXX. you talk as to IMO So

you the actual pricing you I to market indicators mean is what's base what of can IMO separate is up -- that I IMO to starting you're looking what coming would for oil the less in be XXXX. know you going I impact how are or it -- going competitive impact out the you'll from the mean in oil of and think You you XXXX. you general see know or see benefit market? on the obviously XXXX US intensity within

Brian Recatto

It fuel be demand the be these oil in. less there'll high little of as will are I Yeah. expectations new for kick bit both. certainly a mean that sulphur standards

look really happened talked globally. if because for going I've high hasn't that crude change know by back we the at are the the moving are demand strip the used get of to That to the on the of pressure which year earlier. we sulphur, as people But some end driven of motor do that obviously will should you from base on like the about as we the ease production and our As XXXX issues seasonally expect distillate less move volume the help production is Right that that's that perspective. The fuel stabilize. to IMO hope sides they'll that equation slow QX both oil pricing now of those us periods base base is periods, so should continue and pricing. IMO on oil we've in to good production, had hope which got will stabilize behind XXXX oil oil

Kevin Steinke

Okay. That's helpful.

really more going spend this the mentioned, the services On in segment, par with you did mentioned also like well, more you 'XX. you you're environmental year, opportunity. But to what on you

than on get are you there get mean, You you of cause constraints on aggressively any to what even And aggressive. are aggressive I more touched now? mean, more to potential ES? growing it kind to the would more growing I

Brian Recatto

support we've to really bit certainly can we new people. a it talked the We us that will sure right cost the that of I'd initiate to grow in that up Yes. our organic footprint, augment structure we've do. We're meaningful that we our the because money The some speed acquisitions certainly will going we what development help younger But density, we'll to us out helps making geographic candidates grow our to the branch our the balance don't find fit that's the it of West just about and past in improves our in a western Obviously, from do U.S. hub people-related, going on expansion the the of it new route organically to program perspective, are ability accelerate and like training with up constraints internal if be quite trust because acquisitions, growth network. speed half got my to we're building sheet.

spend of it we off, depends those end speed acquisitions. money the probably towards Or organic we'll the on more year. back just So up growth. If pull don't

Operator

session. gentlemen, participating That thank Everyone, have today's concludes conference. all you wonderful today's This disconnect. question-and-answer program you today's for may Ladies and in conclude day. and does a

Heritage-Crystal Clean (HCCI) 4 May 192019 Q1 Earnings call transcript