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spk00: Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin shortly. Please continue to standby. Thank you for your patience. Again, today's conference is scheduled to begin shortly. Please continue to standby. Thank you for your patience. Good morning, ladies and gentlemen, and welcome to the Heritage Crystal Queen Incorporated Second 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 the time for you to queue up for 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. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward-looking statements speak as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. Please refer to our SEC filings, including our annual report on Form 10-K, as well as our earnings press 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 this non-GAAP financial measures to GAAP. For more information about our company, please visit our website at www.crystal-clean.com. With us today from the company are the President and Chief Executive Officer, Mr. Brian Recato, and the Chief Financial Officer, Mr. Mark Bevita. At this time, I would like to turn the call over to Brian Rattato. Please go ahead, sir.
spk04: Thank you. Good morning, everyone, and thank you for joining us today. On behalf of the entire Crystal Clean team, I want to let our investors know how pleased we are with the record-setting second quarter results we released last night. We produced several records during the second quarter, including total revenue, net income, earnings per share, and EBITDA. In several cases, our second quarter results were significantly higher than our previous record performance. Mark will provide additional detail, but total second quarter revenue exceeded expectations at $117.3 million, which helped produce record EBITDA of $26.2 million. Now I would like to discuss the results of both of our reporting segments. Typically, I cover our environmental services segment first, but given the outstanding results in our oil business, I feel compelled to discuss this segment first. During the second quarter of fiscal 2021, oil business revenues more than doubled compared to the second quarter of fiscal 2020 to $44.6 million. The increase in revenue was mainly due to an increase in our net back for base oil, of $1.62 per gallon compared to the second quarter of 2020, and by 81 cents per gallon compared to the first quarter of 2021. Additionally, our base oil sales volume of 11.5 million gallons during the quarter was 61% higher than the volume of base oil sold during the second quarter of 2020, and further contributed to our record revenue performance. Oil business segment operating margin was a record 34.2% during the second quarter. The higher operating margin compared to the second quarter of 2020 was mainly due to the improvement between the cost of our used oil feedstock and the selling price of our base oil, along with the lack of an extended voluntary shutdown of our re-refinery, which occurred during the second quarter of fiscal 2020. We moved from a charged oil position during the first quarter of 2021 to a slight paid oil position during the second quarter as the price for crude oil continued to rise. We continued to attract used oil feedstock from third parties at fair prices, which helped improve our operating margin during the quarter. Mark will provide more detail in a few minutes. Our re-refinery team continued to execute well during the second quarter. It has been 10 quarters since we've had a significant unplanned downtime at the re-refinery. We produced 11.6 million gallons of base oil during the quarter, which was approximately 80% more than the second quarter of 2020, and we temporarily idled the facility due to the negative demand impact from the pandemic. We continue to demonstrate why we believe the re-refinery operation is now a strength of our oil business. Let's now move on to the environmental services segment. In the environmental services segment, revenue for the second quarter of 2021 was $72.7 million compared to $59.8 million for the same quarter of 2020, an increase of $12.9 million or 21.6%. The increase in revenue was driven by growth in all of our lines of business as compared to the second quarter last year, which was negatively impacted by the effects of the COVID-19 pandemic. While it was great to see our improvement relative to the pandemic impact and results from 2020, we were even more pleased to see that our revenue for the second quarter exceeded revenue from the second quarter of 2019 by 3.6% in this segment. Our profitability in the environmental services segment increased by 130% compared to the second quarter of last year, which was severely impacted by the pandemic. This increase in profitability exceeded our expectations and demonstrates the potential leverage we have in our route-based service model. Now we'd like to look forward and discuss our outlook for the future. In our environmental services segment, our growth compared to 2019 is an indication that we have shifted from recovering from the pandemic to being focused on growth again. While there are still risks related to the Delta variant of COVID-19, We're confident that we can operate effectively and continue to drive revenue growth in the current environment. We still expect to continue to grow compared to 2019 in the second half of fiscal 2021, exiting the year at a mid-single-digit growth rate. From an operating margin percentage standpoint, we have been facing and expect to continue to face supply chain issues and inflationary pressure for containers, transportation, waste disposal, and other items. We are working hard to counteract the negative impacts of these items by internalizing more non-hazardous waste disposal, and we also plan to implement our annual price increase at the beginning of the fourth quarter, which is earlier than we would normally do it in a typical year. We believe at least a portion of the inflationary pressure we are currently experiencing is transitory. However, it's unclear if some of these higher costs will continue through the end of fiscal 2021 or even into 2022. Despite the cost pressure, our goal remains to have our operating margin approach 27% in the segment by the end of the year. From an oil business segment perspective, we continue to see tight supply in the base oil market, which has continued to push prices higher into the third quarter. While we believe the factors driving much of the supply tightness are temporary, we expect strong base oil prices to continue for most of the second half of the year, with some easing as we enter the fourth quarter. For the third quarter, we expect a slight uptick in revenue from our second quarter record based on higher base oil net back, but with production near nameplate capacity and less revenue from charge for oil. From a profitability perspective, we expect third quarter operating margin to be in the 30% range, as higher pricing is offset in some degree by higher pay for oil and inflationary pressures in transportation and the other areas which I mentioned earlier. While the fourth quarter should continue to see operating margin above historical norms, we do expect it to decrease compared to our expectations for the third quarter. From a longer-term perspective, we did not expect the spread between our base oil netback and our cost for feedstock to remain at the level we experienced in the second quarter. Our spread was approximately $1 per gallon higher in the second quarter of 2021 compared to the second quarter of 2019. We cannot say how much of the expansion and spread is due to pandemic-related factors, such as the indirect effects of lower desolate production at burns and refineries, and weather-related outages from earlier in the year, or how much is due to the impact of the new IMO 2020 regulations. However, we believe that all of the factors are playing a meaningful role in creating the spread we are enjoying today. We also believe some of these factors are transitory in nature. As the impacts on demand for distillate driven by the pandemic continue to lessen, and virgin refineries finish rebuilding their base oil inventories, we will have a better idea of what to expect in 2022 as it relates to our oil business. While we are aware of rising COVID-19 infection rates in certain parts of the U.S. due to the Delta variant, our outlook assumes that the general economy will continue to recover as it has over the past year, and that our team will continue to successfully navigate the challenges caused by the pandemic. Should this not be the case, this will negatively impact our outlook. Before I turn things over to Mark, I want to remind our investors that we remain focused on promoting ESG and Heritage Crystal Clean. We continue to work on the formal sustainability program we launched earlier this year. While the foundation of our company was built on sustainability, with activities such as turning used oil, waste antifreeze, and waste solvent into reusable products, we realized the need to create a formal program to better inform our stakeholders and the general public about the sustainability aspects of our business. We remain on track to reach our goal of issuing our first sustainability report near the beginning of our fourth quarter. We believe we have a great story to tell and look forward to sharing it with everyone. With that, Mark will take us through our second quarter of financial results.
spk05: Thanks, Brian. It's great to be with everyone this morning. In the second quarter of 2021, we generated $117.3 million of revenue, compared to $79.5 million in the same quarter of 2020, an increase of $37.8 million on 47.5%. This $37.8 million increase in revenue was mainly driven by continued growth and recovery from the impact of the COVID-19 pandemic, which negatively impacted 2020 revenues. Net income was a record $15.1 million, or $0.64, for diluted share for the second quarter of 2021. This compares to a net loss of $2.7 million, or $0.11, for diluted share in the year earlier quarter. This past quarter was not only the second quarter in a row in which we had a record high net income, but net income for the quarter was 64% higher than the first quarter this year, which was our previous record for a 12-week quarter. Now let's talk oil. Oil business segment revenues for the second quarter of fiscal 2021 were a 12-week quarter record of $44.6 million, an increase of $24.8 million, or 126%, compared to the second quarter of fiscal 2020, and an increase of 28% compared to the second quarter of fiscal 2019. The increase in revenue compared to the prior year quarter was mainly due to an increase in our selling price for base oil and an increase in the volume of base oil sold, minimally offset by a decline in charge for oil revenue. Our base oil netback, which is our selling price net of freight costs, increased significantly compared to the first quarter and second quarter of last year, but it was also up by approximately $1 per gallon compared to the second quarter of fiscal 2019. Ryan mentioned our increase in base sale sales volume compared to the first quarter and second quarter of 2020. The base sale sales volume was also 5.2% higher in the second quarter compared to the same quarter of 2019. From a profitability standpoint, oil business segment operating margin increased 20.8 million to a record 34.2% in the second quarter of 2021 compared to negative 28.2% in the second quarter of fiscal 2020. The higher operating margin compared to the second quarter of 2020 was mainly due to the improvement in the spread between the cost of our used oil feedstock and the selling price of our base oil, along with the lack of an extended voluntary shutdown of our re-refinery, which occurred during the second quarter of fiscal 2020. We ran the re-refinery at 102.8% of the namesake base oil capacity during the second quarter. which allowed us to significantly increase the throughput at the refinery during the quarter compared to the year earlier quarter, which provided improved leveraging of our fixed costs. From a used oil collection standpoint, on a weighted average basis, we experienced a net decrease of 47 cents per gallon from a significant charge to oil position during the second quarter of last year to a slight paper oil position in the second quarter of fiscal 2021. Comparing the second quarter to the first quarter, the net change from charge for oil to pay for oil was 16 cents per gallon. Fortunately, we increased our use oil collection efficiency during the quarter by 32% compared to the same quarter last year, and 12% compared to the first quarter of 2021, despite the fact that we continue to add oil service reps. As you might expect, the cost of third-quarter use oil feedstock also increased during the quarter. However, the cost of this feedstock increased by only $0.06 per gallon from the first quarter to the second quarter. Part of the reason for this modest cost increase was the declining demand for this material. During the second quarter, we lowered our first 30 feedstock purchases by 36% compared to the first quarter. On to environmental services. The environmental services segment reported revenue of $72.7 million, an increase of $12.9 million, or 21.6%, compared to the year ago photo. The 21.6% increase in revenue was mainly due to our continuing recovery from the COVID-19 pandemic when compared to the second quarter of 2020. We saw volume increases in all of our lines of business compared to the second quarter of 2020. As Brian mentioned, compared to the results for the second quarter of 2019, second quarter 2021 revenues were also higher. This growth was led by our containerized waste business with our wastewater vacuum, field services, and 83 businesses also showing growth. Our parkland business revenue performance was slightly less in the second quarter of 2019. Our environmental services profit before corporate SGA expense increased 10.8 million, or 129.6% in the second quarter of fiscal 2021, to a record 19.2 million compared to the second quarter of fiscal 2020. The increase is mainly driven by higher revenues due to waning negative impacts of the COVID-19 pandemic, which produced improved leveraging of fixed costs. Operating margin for the second quarter of 2021 was 26.4%, compared to 14% in the second quarter of 2020. Operating margin percentage is only 60 basis points below our results for the second quarter of 2019, 27%, which is also a year-end run rate goal for the segment. Our total company operating costs increased 6 million, or 8.2%, during the second quarter of 2021, compared to the second quarter of fiscal 2020, which was mainly due to higher labor costs, health and welfare costs, transportation-related expenses, and higher use of our food stock costs as a result of more business activity due to the lessening impact of the COVID-19 pandemic. Our overall corporate SG&A expense is $13 million, represents an increase of $1.9 million or 17.1% compared to the year-goal quarter, mainly driven by an increase in share-based compensation as well as software licensing fees and travel expense. EGADAR up $26.2 million with the record and up $23.4 million compared to the year-goal quarter. This was the third consecutive quarter of record EBITDA, and second quarter EBITDA was 59% higher than the previous record from the first quarter of 2021. Company's effective income tax rate for the second quarter of fiscal 2021 was 26.1%, compared to 8.7% on the second quarter of fiscal 2020. The rate increase is principally attributable to the imposing effects of non-adaptable expenses in the projected lost year as compared to the projected income year. Looking at the balance sheet, we have $67.3 million of cash on hand at the end of the quarter, which is relatively flat compared to the end of fiscal 2020, even though we paid off a $30 million turn around in the first quarter of this year. Common resources of liquidity for the quarter are cash flows from operations and funds available to borrow under our revolving bank credit facilities. We generated $25.1 million in cash flow from operations during the quarter, which represents a 246% increase compared to the second quarter of 2020. We also generated free cash flow of $19.6 million during the second quarter. We continue to pursue multiple acquisition opportunities as we look to utilize our strong balance sheets to capitalize on inorganic growth opportunities during the remainder of 2021 and beyond. We currently have four transactions under letters of intent, and we believe we will close at least two of these before year-end. To summarize, we are very pleased with the continued improvement we're seeing in our environmental services segment, and we look to move past the negative impacts of the COVID-19 pandemic. We're also excited about our execution in the oil business segment and our ability to take advantage of favorable market conditions. This concludes our prepared remarks. I will now turn the call over to the operator to take your questions.
spk00: As a reminder, to ask a question, you will need to press part one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from David Manzi from Baird.
spk02: Hi. Good morning. Thank you.
spk04: First question. In 2018 and 2019, your ES segment average daily sales were down slightly from the second quarter to the third quarter. Would you expect that to be the case this year as well, or as the business gains momentum, could we actually see a higher sequential rate of daily sales?
spk05: I think from an ES standpoint, Mark, we do have – an extra holiday in Q3 typically. I don't know why that wouldn't have been the case back in 18 and prior years. I don't think we expect any material step backwards, but it's typically something where you have continued growth on a year-over-year basis. Sequential growth, you're not going to see anything new what we saw last year because of the pandemic and recovering from that. But we still expect to get, whether it's low, single, or getting into that mid-single-digit growth rate versus 19. That's kind of what we expect for Q3.
spk04: Yeah, I would agree with that. We are obviously worried about inflationary pressure, which you heard in our prepared remarks, in terms of margins, which is why we're guiding more toward the back end of the year after we get our price increase out there for the 27% run rate. We're going to work hard to do as well as we can in Q3, but there's a lot of pressure out there right now. You know, fuel supplies, rolling stocks, maintenance costs, labor, I mean, third-party logistics, it's all over the place now. Thank you. And when, from a timing standpoint, when does your price increase go into effect and when should it start benefiting you? Did you say the fourth quarter? Yeah, we expect it to happen, you know, be effective in October. We're going to speed it up a little bit this year, you know, because of the pressure that we're feeling. Yeah, understandable. And then finally, when you look at the oil business, what would you consider a good level of profitability before corporate expenses there? It's been wildly volatile. And I know when you started this project, you ran some Monte Carlo simulations, and you were sort of thinking about what that should look like. I mean, is 10% sort of, you know, a light in the sand? Or where would you consider sort of an acceptable rate to be at? I mean, my personal opinion is I'd like to see it a little bit north of 10%. Yeah, we're seeing some fundamental shift in the overall market. As we talked about in our prepared remarks, we've got to see the ultimate outcome of IMO 2020. But we're certainly seeing less pressure on the used motor oil supply, which we think is going to give us a little more pricing power than we historically have seen, which should help us bump those margins up a little bit. Obviously, we expect... base oil supply to return to some level of normalcy by the end of the year, given that refineries are now back to normal utilization. There's a shortage of distillers coming out. They're going to produce as much as they can now, which is going to increase the base oil supply just as a function of refinery utilization. So we think that will normalize. We hope structurally we'll see the change in use motor oil. And, David, we are seeing some positives in terms of of our product out in the marketplace as it relates to ESG. I mean, more people care about our product and have an interest in it because of our ESG requirements, and we hope As we look into 2022, that may give us a bit of a bump on price. So structurally, I'm feeling better about it, certainly north of 10, you know, between 10 and 15. I'd like to see it up in that 15 range personally. And we're working the costs out hard. I mean, you've seen what we've done over the four years. We've driven our costs from, you know, mid-80s CPG down into the 60s consistently. So that's helped as well.
spk05: Yeah, it's all about uptime there. So, I mean, that, you know, the couple years in a row plus not having to unclimb downtime makes all the difference.
spk04: Yep, sounds good, guys. Thank you very much. Thank you.
spk00: Your next question comes from Jim Richuti from Midheim and Company.
spk02: I have more to just question on these price hikes that you alluded to that you will be putting through a little earlier. Sounds like in October. How do these compare with some of the pricing actions you've taken in the past? Last year, remind me, I don't think there were any just in light of what we're seeing. But how does this compare with prior years?
spk04: It's going to be a little bit higher than prior years, you know, driven by the fact that we're seeing a bit more inflationary pressure. And we didn't do a lot in 2020 because of the pandemic. So we feel like, you know, we're going to shoot for, you know, mid to high single-digit number across the board with all of our customers.
spk05: I think it'll probably end up being in that 200 or 300 basis points above what might be the long-term average. what we describe specifically. Again, we go out with a prescribed number, Jim, and you're probably familiar with this. You've probably heard me say it before. But then there's usually a slightly lower realization rate as we get into specific situations. We like to have flexibility. But it's not as if it's completely the same approach for every single customer. That's kind of the effective rate or realization rate is really what you want to focus on. And I think what I said earlier is how contrast with prior years.
spk04: But we are going to push a bit more discipline with this price increase.
spk05: And we are doing things system-wise. Brian mentioned cost control. That's another area system-wise to make sure when we are Making exceptions, I guess I'll use that phrase, that it's something that everyone has eyes on, at least the people that need to have eyes on, and it's not something that everyone's not on board with.
spk02: Just with respect to some of the cost pressures you're seeing, a lot of folks are talking about this being transitory, but are you seeing any evidence of that that gives you comfort that some of these pricing pressures we're seeing could end up being longer-lasting?
spk04: Yeah, we're not expecting to see this, I mean, drag into 2022. But the problem we're seeing out in the field, even with our current customer base, is that they're having trouble with the supply chain. They're having trouble getting staffed up, which is causing overall, you know, logistics issues and supply chain problems, which are driving up the price. So we've We really believe internally that this is going to be a problem that we'll deal with for the balance of the year, and it'll start to normalize as we get into the back end of the year and get more back to normal next year. We're even seeing it on the disposal front because a lot of our end disposal sites are struggling to stamp up and get back to pre-pandemic levels of operating multiple shifts. But we'll see all that improve as people begin to go back to work in September. We think that Our ability to attract employees and certainly our customers and vendors will probably get more employees as we get into the back of the year.
spk02: Okay. And it's pretty healthy. Is there any color you can design to expand geographic footprint? Is that still part of the key part of this?
spk04: I think you were talking about acquisitions. You broke up. Yeah, I'm sorry.
spk02: That's exactly what I was talking about.
spk04: Yeah, no problem. And certainly our focus, as we talk about on every quarterly conference call, is to invest in our ES business. And geographic expansion is a major component. Two of the deals that we're looking at are west of the Mississippi River because of our lack of density there. and the western half of the U.S. So that has been a focus area, not to suggest that we're going to pass up on any opportunities in the Midwest, Southeast, South, where we already have good density, especially as it relates to us adding some treatment capabilities to our network. I think that's been an important component of the work that we're doing on the cost of good services side to minimize our exposure to third parties and get a handle on our internal processing. Last period, we processed almost 6,000 drums internally, which historically we've never done. So we're going to focus on waste processing, and we're going to focus on geographic expansion, most of which will happen out west.
spk03: Thank you.
spk04: Thank you.
spk00: Your next question comes from Brian Butler of Stifo.
spk03: Hi, Brian. Hey, good morning. Thank you. Thanks for taking my questions. Good morning, Brian. Just kind of first one, can you talk a little bit where you think utilization will be in the back half, third quarter, fourth quarter, and when the scheduled downtime is going to occur?
spk04: Yeah, we've got 13 days, I think, left on our turnaround schedule. We've got a big turnaround, which is our – normally we do it in the spring. We obviously pushed it back because the – opportunities we're seeing currently with pricing. So that'll be an eight-day turnaround. And then we may have one more pigging, which will take four or five days, and we'll get done in the back half of the year. So 13 to 14 days is the balance of the year. We're projecting Q3 that we'll produce similar base oil numbers that we did in Q2. And then Q4, our current forecast suggests we'll be in the 14,000,300,000 gallon range for the fourth quarter.
spk05: Yeah, so most of those days are Q4. Well, first of all, it's a large shutdown, but as you remember, it's a 16-week quarter, so you're going to see most of those down days hit then. That's why we mentioned and Brian said in his earlier remarks operating more at base or nameplate capacity because if you look at the last four quarters or TTMs, You know, it's a $50 million-plus number, and people need to remember Q2 last year is when we took an extended shutdown. Most of that was driven by the lack of demand, so we weren't going to be busy anyway. But you don't really have a once-a-year extended shutdown in the TTM right now. You've got to remember that.
spk04: And we expect demand to continue to be strong, you know, through the end of the year. That's all demand is.
spk03: Okay, that's helpful. And then on the ES part, can you give some color on kind of what the average weekly branch revenue was exiting the second quarter and how that compares maybe to second quarter 2019?
spk05: Yeah, you know, I was looking at that. And it's probably, you know, up on a weekly basis, you know, probably a quarter and a quarter of a million bucks a week to maybe half a million somewhere in between. It depends on the week and depends on your sample size. But it's definitely on top of the pre-COVID numbers and roughly along the same rates that we exceeded revenue in Q2 2021 versus Q2 2019. So it's in that low to mid-single-digit range.
spk03: Okay, above 2019 levels, that's right. Yeah. Okay. And then you think we're seeing enough recovery in the industrial economy to see a rebound kind of in the field services sales on the volume?
spk04: Yeah, I mean, we're feeling pretty good about it. I mean, we had, I think the number was close to 20% growth in field services sales. You know, with GDP tracking at 6.5% every quarter, I mean, I feel like, you know, we're certainly seeing lots of opportunities. We haven't landed any really big projects this year, and that's partly because they're tough to manage. We like the small to mid-sized projects. So we certainly think that business is going to continue to recover this year.
spk05: What Brian said, we're on top of 2019 projects. already with field services.
spk03: Okay, that's helpful. And then last one, just to circle back on the M&A, can you give any color on maybe the size of the deals you're looking at magnitude-wise? I mean, are these really big, really small, in the middle?
spk04: Yeah, they're kind of small to in the middle. I mean, they're tuck-in acquisitions, but they're important because they offer up treatment capabilities that we don't currently have in some of these regional marketplaces.
spk03: Are these really more service-based as opposed to assets?
spk04: I think there's a mixed bag. Two contain nice assets. The other is service-based. They're all industrial waste and hazardous waste focused. So right in our wheelhouse.
spk05: And in addition to those that are further in process, so to speak, the four that we mentioned in our prepared remarks, we continue to chase their in process and You know, beyond the first stage, there's much larger ones as well. So it's like any – it's similar to any sales process, right? You look at enough and you hope to close a certain percentage of them. So there's no shortage of opportunities, that's for sure. The market, as I'm sure you and everybody know, is pretty hot as far as number of opportunities. It's also fairly expensive, so that's really – where the hard work comes in is to make sure if we're going to spend money, we're doing it on the right deal.
spk03: Okay, great. Thank you.
spk04: You're welcome.
spk00: Your next question is from Kevin Stinky from Barrington Research.
spk05: Hi, Kevin. Morning, Kevin. Hey, good morning.
spk04: So I think you mentioned in the prepared comments You see the ES segment moving from a recovery mode to more of a growth mode, given you're now up versus 2019 levels. Does that imply, or are there any planned increases in investments to drive growth going forward now that you're mostly past the recovery phase? Yeah, I think we mentioned that we were going to get, I think Mark said in his prepared remarks, two acquisitions closed by the end of the year. I think it's going to be three personally. And we've got four in the pipeline. The other one will probably take, you know, get it down early 2022. And we're certainly spending, you know, capital in our ES business. Yeah, I mean, I love organic growth. We've expanded some of our products. plant treatment capabilities. We've certainly invested in rolling stock. You know, the struggle that we're going to have is just getting people on board, and we think that will begin to improve as we get deeper into the year.
spk05: Yeah, that's the real investment from our organic side in headcount, and we... Even before the pandemic, in a growth company, it's not unusual to always be kind of waiting to add that next person and be a little stretched, but we're stretched a little more than normal now. If you look back, these would be before the pandemic. So that's the biggest challenge, and we hope some of the conditions that are keeping people on the sidelines are going to subside here based on when government programs and other factors change. people get more comfortable, you know, the COVID thing starts to completely fade away. When all those factors hopefully come together, personnel won't be as big of an issue, and then we really, that kind of removes the governor on organic growth.
spk04: Okay, yeah, understood. You also mentioned the potential for improved base oil pricing perhaps in the future. just based on the ESG and the attractive nature of your base oil product in terms of it being a recycled product. I mean, is that something you're actually seeing in the market or hearing from buyers that that could materialize or that is actually materializing now? Yeah, I think I said it was our hope in 2022 that we would continue to see opportunities because of ESG. We're certainly going to see improved base oil prices in Q3, just driven by the supply issues that we mentioned in our prepared remarks and the overall high demand that we're experiencing. We're still seeing tremendous demand for our product. We think that'll certainly continue through Q3 and into Q4. We don't know how long it's going to last into Q4. But structurally, we believe that, you know, the market dynamics are changing a bit. I can't tell you if it's going to result in higher base oil pricing, but that's our hope at this point. Yeah, I mean, that's pretty powerful.
spk05: If you look at the discounts that we typically and most refiners sell, they're base oil poor. We've talked about it. Kevin, ad nauseum to whether it's spot or whether it's posted price or, you know, the low necessity group two stuff, it's meaningful. So using it on par, much less a premium, you could potentially completely replace The factors that are increasing fiscal price now that we believe are transitory, again, we don't have a set number, but you talk about that dollar per gallon difference from a couple years ago, you know, the discount that most re-retires or someone at Virgin posted is way more than that. So there's a heck of an opportunity, hopefully, as Brian said, In 2022, that'll become more apparent how real that is. And if we can get too on par, in theory, you would think it might even be a premium because of the scarcity of re-refined base oil. There's much less of this than the total market demand out there. Even if you got a little better at re-refining every single used oil gallon, the math still puts you at a shortage. So long-term, there could be something there.
spk04: All right, great. Um, lastly, I wanted to ask about, um, I think you had a pilot going targeting some of the larger quick loop chains with your new soil collection service. Um, any update on that or, or, uh, color around progress there? Yeah, we're pretty excited about it. We rolled it out into two regions so far this year. We're seeing, um, We have seen some success already. We've closed a few larger corporate account deals. Certainly go take a look at it on our website. We're pretty proud of the marketing campaign that we pulled together. We're very excited about it. You know, in the spirit of trying to – you've heard us talk about controlling our own density on used motor oil and obviously increasing our route density on our trucks. We're one of the largest antifreeze recyclers. We think it's important for us to have a direct retail offering to the automotive accounts, and this is the way we're going to approach it. And we're seeing success already. So I'm pretty excited about it. Great. Thanks for taking the questions. Thank you. Thanks, Kevin.
spk00: Again, if you would like to ask a question, just press star 1 on your telephone keypad. there are no question at this time again we thank you and appreciate your interest and participation on today's call this concludes today's conference you may now disconnect thank you
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