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spk00: Ladies and gentlemen, today's conference is scheduled to begin shortly. Please continue to stand by and thank you for your patience. Ladies and gentlemen, today's conference is scheduled to begin shortly. Please continue to stand by and thank you for your patience. THE END Oh, my God.
spk06: A lot of people on the call today.
spk00: Good morning, ladies and gentlemen, and welcome to the Heritage Crystal Clean Incorporated fourth quarter 2021 earnings conference call. Today's call is being recorded. At this time, all callers' microphones are muted and you will have an opportunity at the end of the presentation to ask questions. Instructions will be provided at that time for you to queue up your question. We ask that all callers limit themselves to one or two questions. Some of the comments we will make today are forward-looking. Generally, the words aim, anticipate, believe, could, estimate, expect, intend, may, plan, project, should, will be, will continue, will lack a 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 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 cancellations of these non-GAAP financial measures to get. 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 Riccato, and the Chief Financial Officer, Mr. Mark DeVita. At this time, I would like to turn the call over to Brian Riccato. Please go ahead, sir.
spk06: Thank you, Katrina. Good morning, everyone, and thank you for joining us today. On behalf of the entire Crystal Clean team, I want to let our investors know how pleased we are with the record-setting fourth quarter results and four-year performance. We produced record revenue EBITDA and adjusted EBITDA during the fourth quarter. Mark will provide additional detail, but total fourth quarter revenue exceeded expectations at $169.5 million, which helped produce record EBITDA of $33.1 million. Now I would like to discuss the results of both of our reporting segments. Let me start with our oil business segment. During the fourth quarter of fiscal 2021, oil business revenues increased 60.1 percent to 65.8 million compared to the fourth quarter of fiscal 2020. The increase in revenue was mainly due to an increase in our base oil net back of $2.06 per gallon compared to the fourth quarter of 2020 and by $0.09 per gallon compared to the third quarter of 2021. Oil business segment operating margin improved 24.7 percentage points to 33.7 percent in the fourth quarter of 2021 compared to 9.1 percent during the same period of 2020. The higher operating margin compared to the fourth quarter of 2020 was mainly due to an increase in the spread between the net back on our base oil sales and the price paid or charged to our customers for the removal of their used motor oil. Our re-refinery team continued to execute well during the fourth quarter. It has been several years since we've had significant unplanned downtime in our re-refinery. We produced 14.2 million gallons of base oil, which was approximately 10% less than the fourth quarter of 2020 due to the timing of a planned turnaround. Remember that in 2020, we intentionally took an extended shutdown during our second quarter due to the impact of the COVID-19 pandemic. In the years before the pandemic, we had always taken our once per year extended shutdown during the fourth quarter. We have now returned to that cadence during 2021. We're very pleased with the consistency of our re-refinery operations demonstrated over the past three years. Let's now move on to the environmental services segment. In the environmental services segment, revenue for the fourth quarter of 2021 was $103.7 million compared to $90.9 million for the same quarter of 2020. an increase of $12.8 million, or 14 percent. The increase in revenue was mainly due to the continued increase in the demand for our services compared to the prior year quarter. We experienced volume increases across the majority of our service lines in the segment when compared to the fourth quarter of 2020. While it was great to see our improvement relative to the pandemic-impacted results from 2020, we were also pleased to see that our revenue for the fourth quarter exceeded revenue for the fourth quarter of 2019 by 7 percent in this segment. Environmental services segment profit before corporate selling general and administrative expenses was 22.8 or 22 percent of revenue compared to 22.4 million or 24.6 percent of revenue in the year-ago quarter. The decline in operating margin percentage was mainly due to the higher transportation disposal related expenses, as well as higher container insurance and workers' compensation expense. Labor costs and staffing vacant positions will continue to be a challenge as we exit the pandemic. However, I am happy to report that our COVID-19 case count has declined meaningfully as of the end of February. Last but most important, I want to commend our team for achieving the lowest lagging indicator safety metrics in the history of our company. We're very proud of our performance given the tremendous turmoil the pandemic has caused our field personnel. Now I would like to look forward to discuss our outlook for the future. In our environmental services segment, we experienced a great start to our first quarter from a revenue perspective. Despite the fact that we experienced more confirming cases of COVID-19 in January 2022 than any previous month during the pandemic, we still have managed to generate double-digit revenue growth on a year-over-year basis for the first several weeks of the first quarter. Assuming the overall U.S. economy remains steady, we expect to achieve low double-digit revenue growth during the first half of 2022 with slower growth in the second half of the year as we face tougher comparable results from 2021. From an operating margin percentage standpoint, we expect to continue to battle higher costs during the first half of the year. While our fourth quarter price increase in the environmental services segment was successful, we did not anticipate that the factors driving higher costs in various parts of our business will not only continue, but worsen throughout the fourth quarter and into the first quarter. In response to these higher costs, we implemented additional price increases during the first quarter. Since some of these increases were not implemented until the end of February, we expect operating margin to be in the low 20% raise during the first quarter with gradual improvement throughout the remainder of the year. We expect to exit fiscal 2022 with segment operating margin at or close to 27%, provided inflationary conditions stabilize as expected. From an oil business segment perspective, we're happy with the start of 2022. During the fourth quarter of 2021, the base oil market moved into an oversupplied position, which put downward pressure on base oil pricing. In response, virgin producers sold excess supplies into the export market, and some also reduced production runs to bring the market back into balance. From a pricing standpoint, several virgin base oil producers raised their posted prices in the past few weeks. These moves are in response to higher crude oil prices. The supply and pricing moves have stabilized the market going into the busier spring and summer driving seasons. Demand from our customers remains steady, and we expect it to remain consistent provided additive supply improves as we move into the busier spring and summer seasons. While the higher crude oil prices will continue to put pressure on our paper oil, we believe the combination of factors I just discussed will allow us to generate operating margin in the mid-20 percent range during the first half of 2022. I'm also happy to report that our acquisition-related activities are in full swing as we look to utilize our strong balance sheet to build on the momentum generated from the two transactions we closed during the fourth quarter. Our focus will continue to be on businesses that expand our ES footprint and operational capabilities. We now own eight non-hazardous waste processing facilities which allow us to not only treat wastewater, but we also have the ability to consolidate and solidify waste drums at a growing number of these locations. These capabilities will help offset the high cost of third-party disposal services. Two of our current operating locations will be commissioning drum processing that should become operational during the second quarter of 2022. With that, Mark will take us through our fourth quarter financial results.
spk04: Thanks, Brian. It's great to speak with everyone today. In 2021, we generated $515.3 million of revenue compared to the prior year revenue of $406 million, an increase of $109.4 million, or 26.9%. The company's 2021 fiscal year was comprised of 253 working days compared to 256 working days in fiscal 2020. On a sales per working day basis, revenue increased approximately 28.5% in fiscal 2021 compared to the prior year. The increase in revenue was due to improvement in base oil pricing in our oil business segment, along with our recovery from the negative impacts of the COVID-19 pandemic, as well as continued organic and inorganic growth in our environmental services segment. Net income attributable to common shareholders was $18.1 million, or 77 cents per diluted share for the fourth quarter of 2021. This compares to a net income of 5.3 million or 23 cents per diluted share in the year earlier quarter. Let's get into the details and discuss our oil business segment results. As Bonnie mentioned, our oil business segment revenue increased 60.1% to 65.8 million compared to the fourth quarter of fiscal 2020. An increase in base oil prices was the main driver of the increase in revenue, along with increased revenue as a result of 2021 acquisitions. Fourth quarter revenue growth as a result of 2021 acquisitions was approximately 0.7 million or 1.7% in this segment. From a profitability standpoint, oil business segment operating margin was 22.2 million or 33.7% of segment revenue during the fourth quarter. This represents a fourth quarter record on both a dollar value and percentage basis. The largest driver for this improvement was the spread between the net back on our base oil sales and the price paid or charged to our customers for the removal of their used oil, which Brian previously mentioned. Brian also mentioned the large increase in our base oil net back. This increase was only partially offset by a $0.43 per gallon net change in what we charged customers to pick up their used oil during the fourth quarter of 2020 compared to what we paid customers for their used oil in the fourth quarter of 2021. Compared to the third quarter, our pay for oil increased by $0.05 per gallon during the fourth quarter. We were able to sell 14 million gallons of base oil in the fourth quarter. This was down by 2.7 million gallons compared to the year earlier quarter because of the lack of a planned extended shutdown during the fourth quarter of 2020, as well as the fourth quarter of 2021 having one less week compared to the fourth quarter of 2020. From the re-refinery perspective, we finished fiscal 2021 with a record 50.5 million gallons of base oil production. Based on the performance over the past two years, we officially increased the main plate base oil production volume of the re-refinery from 49 million to 50 million gallons per year. This change is effective beginning with the first quarter of 2022. Now let's discuss environmental services. The environmental services segment reported revenue of 103.7 million, an increase of 12.8 million or 14% during the quarter compared to the fourth quarter of fiscal 2020. The increase in revenue was mainly due to volume increases in our containerized waste, wastewater vacuum, and anti-freeze businesses, as well as improved pricing in parts cleaning, containerized waste, and wastewater vacuum. In addition, fourth quarter revenue growth as a result of 2021 acquisitions was approximately $3.9 million, or a 4.3% increase. On a sales-for-working-day basis, overall environmental services segment revenue increased approximately 18.5%. compared to the prior year quarter. Our profit before corporate SG&A expense as a percentage of revenue decreased to 22% compared to 24.6% in the year-ago quarter. The decline in margin was driven by the factors Brian mentioned earlier, along with higher expense for solvent, as well as higher parts cleaning machine costs. While we implemented a price increase across most of the environmental services segment businesses during the beginning of the fourth quarter, This was not enough to offset the extremely high inflation we experienced in this segment during the quarter. Our overall corporate SG&A expense of $20.6 million increased by $4.3 million compared to the year-old quarter. The increase was mainly driven by higher share-based compensation and management incentive compensation expense, as well as higher legal fees, partially offset by lower retirement and severance costs. Corporate SG&A expense as a percentage of revenue was 12.1% compared to 12.3% in the year-ago quarter, driven by the increase in revenue, partially offset by higher overall SG&A expense. EBITDA of $33.1 million was a record and up $14.7 million compared to the year-ago quarter. Adjusted EBITDA of $35.7 million was also a record and represents 21.1% of revenue and an 88.9% increase compared to the prior year quarter. The company's effective income tax rate for fiscal 2021 was 25.8% compared to 28.8% in fiscal 2020. The decline in the effective tax rate is principally attributable to the diminished impact of certain required adjustments to financial reporting income in determining taxable income in 2021 as compared to the impact of those adjustments in fiscal 2020 due to financial reporting income in 2021 increasing substantially over financial reporting income in 2020. Looking at the balance sheet, we had $56.3 million of cash on hand at the end of the quarter. Our primary sources of liquidity for the quarter are cash flows from operations and funds available to borrow under our revolving bank credit facility. We generated $27.9 million in cash flow from operations during the quarter, which represents a 27% increase compared to the fourth quarter of 2020. We also generated free cash flow of $15.9 million during the fourth quarter of 2021 compared to $15.2 million during the fourth quarter of 2020. To summarize, We are excited with the strong top-line growth we're experiencing in our environmental services segment, and we're working hard to combat the negative impacts inflation is having on our business in order to restore our margins in this segment. We continue to be pleased with the execution in the oil business segment and our ability to capitalize on favorable market conditions. This concludes our prepared remarks. I'll now turn the call over to Katrina to take your questions.
spk00: Thank you. Ladies and gentlemen, if you have a question at this time, please press the star, then the number one key on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question is from David Manthe with Baird.
spk08: Yeah, hi. Good morning, guys.
spk06: Hey, David.
spk08: How are you? Hey, so just a few modeling questions here, if I could. We can talk about the segments in a second, but on the corporate SG&A side, I think you've historically said that should grow at about half the rate of revenue growth, but there's obviously a lot of unusual dynamics going on near term here. How should we think about that in – in 2022? Should we just escalate it slightly from what we saw in 21? Or just to give us any kind of clue into that corporate SG&A line?
spk04: Yeah, I think that's the right approach. Again, I know the management team would love to have the bonuses that are higher than Target and some of the other things, but we did incur that. We mentioned legal fees. Brian and I did. And I don't think you're going to have as much of an increase as you might normally have from what I guess is what I'm saying is an inflated 2021 number for SG&A. Okay.
spk08: Okay. And then, you know, speaking of the abnormalities, as we look at 2021 environmental services business, it seems like in 2020 you had a large project in there. You had some strange parts washer trends. Is 2021 a pretty reasonable base to think about more normalized growth off of and adding a price increase and getting a little bit of volume growth potentially? Or is there anything unusual in 21 we need to consider?
spk04: No, I really think we're coming out of All these unusual, and a lot of it is pandemic-induced, but these unusual items that make comparability in the traditional year-over-year basis, it didn't really work that much in the last six-plus quarters. But we're really beginning with this quarter. We're in now first quarter 2022. I think comparing that to 2021 is going to be a valid and valuable comparison. So we're planning on, from a management approach, really getting back into that mode.
spk06: Yeah, I definitely agree, David, on that. I mean, obviously, you listen to us relatively prepared remarks around cost structure. It's been in the industrial business for 35 years. I've never seen costs creep like we've seen the last 12 months. It's been a big-time battle, especially the last six months. So, unfortunately, we'll have to do another price increase when we have in the first quarter. And who knows what inflation is going to bring for the balance of the year in terms of additional price increases. We're trying not to be so disruptive to our client base. I mean, we're already an expensive provider because we deal with a lot of smaller quantity generators. We want to be careful, make sure we treat our customers the right way. We know this is not going to last forever. It will stabilize. so we're not going to price ourselves out of business. And, you know, we've got to work on the cost side of the business, the P&D piece of it, and we're doing that with adding our own capabilities. But that costs money to get it done, and we'll reap the benefits after the plants are up and running, and we can maximize throughput and reduce the operating cost.
spk08: Okay, Brian, thank you for that. And then finally, Brian, You've historically thought about the ES business as being kind of a mid- to high-20s segment operating margin business, and I think you used to talk about the oil businesses optimally running about 15%. percent segment operating margin. Correct me if I'm wrong on that. But, you know, given everything that's going on here, you know, ultimately three to five years out, is that where we're headed again, do you think? Or is there just too much volatility to even put a pinpoint on where profitability should be ultimately?
spk06: Yeah, I definitely agree with your commentary on ES. I mean, you know where our goal is relative to margin and That's been impacted. Whenever you're growing like we're growing, David, obviously we've had to deal with the issues around inflation. It's been tougher, but we'll get back there. We know how to get back there. Oil is a little bit harder to predict. We certainly think we've seen some structural changes in the business, but we're not going to go out and say that our run rate margins are going to look like what they do today. We think 10% to 15%, 15% would be a number that we could live with. going forward on a day-in, day-out basis as the structural changes become very stable. It's just volatile right now, hard to predict. The spreads are high in Q1. I mean, the business looks good. We expect Q2 to be good. We do know that the Virgin refineries are back up and running. I mean, they produced 61 million barrels last year of lube So the market's back in good shape post the events of last year, pandemic and the severe winter storm. So we know the supply's out there. We do think we'll begin to see a little bit of weakness in base oil pricing as we get to the back end of the year. But we're still bullish on the fact that we can perform better than we have historically in the oil business. So 15% for sure.
spk08: Got it. That's helpful. All right, guys, appreciate it. Thank you. Thank you.
spk00: Our next question is from Brian Butler with Stifel.
spk07: Hi, Brian. Good morning, guys. Good morning, Brian. Just, I guess, on the oil business, since we've been talking about it, just what are you seeing in this spot? market when you take a discount to kind of the posted prices. Has that tightened up? Is there any increased demand for the renewable nature of your oil?
spk06: Yeah, we haven't seen any spot pricing discounts. We've actually sold some base oil at prices above spot, but certainly at spot or better is what we're seeing now. And as we talked about in our prepared remarks, we're seeing pretty good demand on the base oil front from our customers, which are, as you know, more Midwest-based. So we're not competing as much with the industrial complex down south, you know, the virgin refineries. And, yes, they do like our oil, and certainly we're talking to, you know, quite a few of the super majors there. You know, the energy cost to produce our base oil versus a virgin refinery, we're going to try to really quantify that over the balance of this year, but we think it's probably half the energy cost to produce our base oil versus a virgin refinery. That's exciting for, you know, the virgin producers to participate in that. So, yes, there's... A lot of attraction to our green base oil these days because of ESG.
spk04: Yeah, and not just the producers, but anyone that's going to be an end user of a finished location. They're going to love that story more and more.
spk07: Okay, and when you look at the facilities for 2022, can you give some color on the timing and maybe the planned turnaround? Is that, again, I think you alluded to it was going to be fourth quarter again, but can you give some color around the quarters?
spk04: I think we'll have the normal cadence that we had pre-2020 or pre-pandemic and not too much different than what we had in 2021. So it should be, and I kind of was saying this when Talking with Dave a minute ago, you know, 2021 is going to be a nice comparable base for us. And that even flows through to how the re-refinery is at least planned to, you know, when the turnarounds are going to happen, when the long one's going to happen. And it'll be in that Q4, beginning of Q4, in the Q3 timeframe again.
spk06: Yeah, we're thinking that the long turnaround will be in September. And we'll have our normal pigging cycles, as we always do, which are shorter turnarounds. So similar cadence as the last year.
spk07: Okay. And then on the ES side of the business, what's the plan for new facilities? Is it still that three to four? And you talked about exiting the year kind of at 27% margins. Does that suggest the new facility growth kind of slows down in 2023?
spk06: No, I think most of our growth will come from acquisitions. We don't have a lot of plans to open organic branches unless it's around the tuck-in acquisition. And I think we've talked about that the last couple of quarters. We prefer to open up in new markets, you know, with a tuck-in acquisition and bolt on our service lines. It's just much easier in this environment because of the difficulty in recruiting employees, staffing route trucks. I mean, it's a tough labor market. So we're going to go the tuck-in acquisition route and we'll expand that way.
spk04: Part of that, Brian, is driven by where is our map not as dense. And it's in those western areas where it's most likely to get an acquisition. You usually get some logistical complement to that or support with it. If we're going to do any more green fields, they're more likely to be in an area where we have the logistical support already. It starts to get pretty cost-efficient and attractive to do it again. But if not, given our cash position, since most of the opportunities are lower or less dense, we're going to be doing the acquisition route.
spk06: And then as we talked about in our prepared remarks, we're going to work harder on our own internal processing. We were on a run rate last year of about 60,000 containers that we processed internally. We like to see that number get into the, you know, near 100,000 in 2022. As I've talked about in prepared remarks, we have two facilities that will be commissioned here fairly soon. They'll start receiving drums. The permits are in place. You know, we've got, we really need to lower our T&D costs. Difficult to do when you're utilizing mostly third parties. And you've listened to their conference calls. They've all raised prices significantly. quite a bit over the last six months, and we've had to deal with it because we don't process a lot of waste. So our objective is to internalize more, get our capabilities built up so we can control our own destiny from a cost standpoint.
spk07: Okay, and then just if I can put one last one in, just on the bookkeeping side, what should we be using for our tax rate for 2022?
spk04: I think we've been guiding before. I had, Brian, when we spoke at the 27% number, given the outlook for profitability and the lessening impact of some of those permanent items on just a larger income base, I'd probably ratchet it down to 26%. Twenty-six percent.
spk07: Great. Thank you for taking my questions.
spk04: And that assumes, I mean, there doesn't, you know, Sands are different from 12 months ago when we all thought corporate income tax rate increases were imminent. I think we all think the opposite now, so that is embedded in my guidance.
spk00: Thank you. Our next question is from Jim Ricciuti with Needham & Company.
spk03: Brian, I just wanted to go back to the comment you made about exiting Q2 on the ES side with, I think you said, this is an environment that you really haven't seen in some time, just from an inflationary standpoint. So I'm just trying to get a better sense of how much can you do in terms of increases if we think this is kind of inflationary pressure and give you the confidence to get to that kind of operating margin on the ES in the year?
spk06: I mean, I think we're confident provided inflation begins to stabilize. I mean, it's very difficult to stay ahead of it when you're having a third party, a lot of your own waste streams. But You know, we talk to the disposal sites every day. We feel fairly confident that they're done with their price increases at least near term. As we talked about in our prepared remarks, we're raising prices again this quarter, which will match the price increases that we've been dealing with. You know, we have the ability with our client base to raise prices. We just don't want to be predatory because we don't think this is going to be permanent and costs will get back to normal at some point. And we care about our customers. We value the growth. And we're not the lowest-priced provider out there now, so we want to make sure we don't price ourselves out of business. So we're going to do the price increase in Q1, and then obviously we'll continue to monitor it. And, you know, we'll probably be back on our normal cadence for a price increase as we approach the fourth quarter, like we do every year. And we'll analyze inflation at that point and make our decision. So we're confident that we can get close to that 27% number provided we don't see continual inflationary pressure through the balance of the year because you're always going to have that lag to get our price increase out there.
spk03: And you mentioned potential for additional acquisitions. And I may have missed it. Was any of the M&A that you've done recently contributing, meaningful contributors to Q4ES? And what's the pipeline look like in terms of additional M&A as we think about 22?
spk06: I'll let Mark talk to the revenue impact, but I'll talk about, you know, the cost impact. It's never easy when you do acquisitions. Obviously, we have operating standards that we want to meet. For example, one of our acquisitions, we're doing capital projects at the acquisition now, so we suspended waste treatment to get the capital done. That negatively impacts your cost structure. We love the revenue side of it, and we're seeing tremendous opportunities on the revenue front. That's why we bought the companies, but it does take time to line out logistics and cost structure, especially in this market. So it probably hurt our profitability in the fourth quarter, helped our revenue, and we'll get the profitability back as we make the changes to the plants that we were going to make as we bought them. We knew the changes had to be made. So I'll let Mark comment on revenue.
spk04: Yeah, from a numbers standpoint, overall, on a combined basis, it was a little more than $4.5 million at the top line. That's both segments, and ES was a little less than $4 million. So it was a vast majority. A few of them have a smaller oil component. And when we look at fields, and again, who knows? It may change in the future, depending on as we get more clarity on how the oil market is going to unfold further out. But right now, our acquisitions are clearly, and Brian might have mentioned this, I'll just reiterate, clearly focused on the environmental services segment and related environmental businesses. But when we get the opportunity, some of these companies also dabble a little bit in oil. It's obviously a great fit for us, especially if we're getting gallons where we're still bringing in a little bit of third party. So it does still fit.
spk06: Got it. Thank you. You're welcome. Thank you.
spk00: Our next question is from Kevin Spanky with Barrington Research.
spk05: Hi, Kevin. Good morning. Good morning, Kevin. How are you? Hey, I'm good. How are you? Good. Hey, so in the earnings release and the discussion here, you called out on a year-over-year basis that Margin decline in environmental services mainly due to higher transportation and disposal-related expenses. And, you know, you've talked about your initiatives to internalize more of the waste disposal. So, you know, how much do you think that can help from a cost perspective kind of going into the second half of the year? And is that something you're factoring into your budget? the target of getting to that 27% margin by the end of the year? It's definitely a factor.
spk04: It's meaningful. It could help certainly 100-plus basis points, maybe a couple hundred. So it really depends on getting some scale through there. We certainly have the demand, and the fit is, when you think of our business, This is a general trend in the industry. It's more and more non-regulated or non-hazardous, not the RECRA has, and that fits like a glove with what we're developing. But Brian mentioned in his prepared remarks we expect two more of these sites to really start to come on here in the near term, and you're adding some of the fixed costs right away, and so you need to build value. So part of it's not just so much having it from a generator standpoint as customers, but making sure we can get it to these sites and start to process it that way. So to me, though, that's just a timing issue. We'll get that done. And on a run rate basis, that's why Brian made his comments on margin. On a run rate basis, we're going to get there this year. We're pretty confident. But it's a matter of, well, timing. When are you going to get there?
spk05: All right. That's helpful because, yeah, that would be a pretty significant boost there. Okay. So just any, you know, I know you're seeing some upward pressure on used oil costs from higher crude oil prices, but just any comment on IMO 2020 and, you know, what impact that's having on the market and if you think that's still benefiting you on the used oil cost side now and over the longer term?
spk06: Yeah, we definitely, and I think we've talked about this on the last couple of calls, we're convinced that we're seeing some benefit from IMO 2020 because the aggregators are not collecting a lot of used motor oil. We've had no issue with receipts at the re-refinery. We've been able to supply volume That's been good. And if you look at historical trends relative to the price of crude, we are acquiring used motor oil cheaper than we ever have relative to the price of crude. You know, 15 to 20% cheaper than historical, maybe even more in certain cases. So definitely have seen some structural changes in the used motor oil market. Matter of fact, Michigan 30 days ago talked about banning the burning of used motor oil in asphalt plants. So you're seeing, because of ESG, the greenhouse gas issue that everybody is focused on, at least in the current administration, and we support it, is that more and more oil, we think, is going to be directed to the re-refineries because it's a better use of the molecule, and people see that now.
spk04: It's going beyond IMO 2020 to just an overall, even in some cases beyond regulatory, just an efficient way to use the molecule. It just makes economic sense overall to move that transaction, if you want to call it that, away from its one-time use and substitute that with other cleaner fuels.
spk06: We certainly saw some pandemic-related volume decreases in the fourth and a little bit in January. But that's picking back up. I mean, the driving miles are going back up again. So we expect the spring to be fine from a used motor oil collection standpoint.
spk05: All right. Yeah, very helpful. And just lastly, as you noted, you increased the nameplate capacity of the re-refinery to 50 million gallons annualized. And you produced, I think you said, $50.5 million in 2021. So, you know, is it safe to just assume kind of a flattish production year over year in 2022 in terms of base oil?
spk06: Yeah, we've squeezed every drop out of that re-refinery without spending additional capital on it. And the other tricky thing that we have to do this year is we're going to be commissioning the flare oil So we've got some work to do there, but we're still signaling a number close to $50 million, you know, barring any upset conditions. Knock on wood, we haven't had any as we talked about for three years. So in that range, but we've maxed out the capacity of that plant based on our current operations. We certainly, as the market, as we continue to see structural improvements in the market and we're convinced that the structural improvements are long-term, We're not opposed and welcome the opportunity to look for additional de-bottlenecking opportunities. We have our engineers. We've got a great team now. They're working on de-bottlenecking opportunities now. So we're always going to look for opportunities to expand. We're not going to do that unless we're convinced the structural changes are here to stay.
spk05: All right. Thanks for taking the questions. That's all I had. Thank you.
spk00: And our next question is from Jerry Sweeney with Roth Capital.
spk01: Hey, Jerry. Hey, Brian, Mark. Thanks for taking my call. My question was really around the oil side. Some of it, I think, was answered just in the last series. But I was curious to sort of the thought process behind, you know, expansion efforts at the refinery. Brian, as you said, I think you're maxing out capacity and Maybe there's some more de-bottlenecking opportunities, which may add incremental capacity. But obviously, I think we've seen a structural change in the oil market. You know, you underscored that 15% operating margin. But what would be the decision-making process maybe for larger expansion of the oil, of the refinery?
spk06: Yeah, I think we'll have to get through this year. get convinced that the structural changes are here to stay. And as we move into next year, certainly the board, we just refresh off of a board meeting and we discuss that exact subject. We're going to table it for now. We have a lot of work to do at the plant to get the flare commissioned. So we're going to focus on that. As I've talked about on prior calls, we're adding a wastewater treatment system to the plant so we can process commercial waters and not as waste streams. It's adding to our capabilities. We're going to do some other work around the ES segment at the re-refinery to promote even more cross-selling. So we're going to focus on getting that done this year, and we'll see how the structural changes play out. We have the guys working on options for the re-refinery de-bottlenecking projects, and they'll present them to me this year, and we'll make decisions around that going into next year. But nothing will happen this year to do any de-bottlenecking.
spk04: Gotcha. Gotcha. You can tell by Brian's comments as you look further, it's really first, let's say we even got to that point, we can do things to get more out of that one site, and that will take us the next leg. It would be a few steps removed from even that decision to reinvest that we'd have to greenfield anything.
spk01: Got it. That makes sense. I figured that would be the response, so And then just staying on this sort of theme of maybe expansion, and you talked a little bit about it on the ES side, but in terms of increasing the barrel capacity, 60,000 to 100,000, as you look at the environmental side, how much opportunity is there to internalize waste across the spectrum?
spk06: Well, we moved 260,000 containers last year and only processed 60,000. and 70% of what we take in is non-RCRA regulated. So you could do the math. We have a tremendous amount of opportunities. The other thing that we have to work on is just the overall logistics around how we move all of our containers because we're kind of in between models right now. the four hubs that you guys are aware of. We have the 90 branches. We're hub and spoking back into the hubs. We're looking at opportunities to move waste directly from the branches into the processing centers. So we have a lot of work to do over the next year on logistics, but our intention is to move as many of the 70% of the 260,000 drums into our system as we possibly can. And we've increased our capacity. We're commissioning two additional sites now. The sites we own, we're just adding capabilities to them. We know how to process waste. So we will get it done, and I think we can hit that 100,000 number by the end of this year and just keep growing it. And I think the side benefit that's going to come from it as we get deeper into this is, really working the logistics angle as we move into 2023. It's not something we'll do in 2022. But once we get the drums routed, we'll relook at how we operate the hubs too.
spk01: Got it. That's helpful.
spk06: I want to start optimizing the cost side of our business as we move into this year. You know, we've been very, very focused on growth and permit changes and capital projects and getting these plants up and running. We've got to get them optimized this year.
spk01: Got it. The follow-up would be, and this is just more out of curiosity than anything, is you sort of grow some of your treatment capacity. Is there an opportunity to even do that for some outside players to increase leverage or speed up the process?
spk06: Oh, absolutely. We're doing it now. We've got great partnerships with our third-party TSDFs.
spk04: But I would say, Brian, I'm sure you'd agree, we're just scratching the surface of it. So we've proven we can do it. It's just a matter of taking, you know, our typical sales approach hasn't been geared towards that part of the market. So we have great experience in more of that, as Brian would say, kind of retail-type space, but it's just getting in. And, you know, by evidence that we're doing it a little bit, we're starting to do that, and there's just a ton of upside. Gotcha.
spk06: They're great partnerships because we're, you know, in turn, brokering the, The HAZ waste, our third-party TSDF partners, they can deliver an odd HAZ. They can pick up HAZ as they're leaving our plant. So we like the strategy. And we're looking at emerging markets, too. I mean, we're very tuned into the battery business. I mean, PFAS is a growing opportunity for us that we're looking at very hard.
spk01: Got it. Perfect. I appreciate your time. Congrats on a great quarter, and thanks again.
spk06: Thank you very much.
spk00: And that is our last question for today's speakers. Thank you. Ladies and gentlemen.
spk04: Thanks, everybody. Thank you.
spk00: You're welcome. Ladies and gentlemen, this concludes today's conference. Thank you again for your participation, and have a wonderful day. You may all disconnect.
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