Heritage-Crystal Clean, Inc
Q4 2015 Earnings Call Transcript

Published: 10 Mar 2016

[Operator:]

Good morning ladies and gentlemen and welcome to the Heritage Crystal Clean Incorporated Fourth Quarter 2015 Earnings Conference Call. Today's call is being recorded. At this time, all callers' microphones are muted and you will have the opportunity at the end of the presentation to ask a question. Instructions will be provided at that time for you to queue up for your question. We ask that all callers limit themselves to one or two questions. Some of the comments we will make today are forward looking, generally the words aim, anticipate, believe, could, estimate, expect, intend, may, plan, project, should, will be, will continue, will likely result, would and similar expressions identify forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated in those forward-looking statements. These risks and uncertainties include a variety of risk 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 are non-GAAP measures. Please see our website for a reconciliation of these 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 Founder and President and Chief Executive Officer, Mr. Joseph Chalhoub, the Chief Operating Officer Mr. Greg Ray, and our Chief Financial Officer Mr. Mark DeVita. At this time I would like to turn the call over to Joe Chalhoub. Please go ahead sir.

[Joseph Chalhoub:]

Thank you. I would like to welcome everyone to our conference call. Last night we issued our fourth quarter 2015 press release and posted it on the Investor Relations page of our website for your review. This morning, we will discuss the financial results and our operations for the fourth quarter and for fiscal 2015 and we will respond to questions you may have relating to our business. The fiscal year 2015 contained one less week than fiscal year 2014. Therefore the fourth quarter of fiscal 2015 has 6% fewer working days compared to our fourth quarter of 2014. Likewise the fiscal year 2015 had 2% fewer working days than fiscal year 2014. Our fourth quarter revenues were $100.4 million compared to $117.1 million in the fourth quarter of 2014. Fiscal 2015 revenues increased 3.2% to $350 million compared to $339.1 million for 2014. The decline in fourth quarter revenues in fiscal 2015 as compared to fiscal 2014 is attributable to the significant decline in the market price of our all products as well as the result of having less working days during the fiscal 2015 quarter. Full-year revenues in fiscal 2015 increased from the prior year due to organic growth in the environmental services segment and from our acquisition of FCC Environmental. During the fourth quarter, our profitability was negatively impact by the continued deterioration of commodity prices in our all business segments. While our EBITDA and adjusted EBITDA were only $0.7 million and $7.4 million respectively for the fourth quarter of 2015 this figures represent a significant improvement compared to the fourth quarter of fiscal 2014. For the full fiscal 2015, we generated EBITDA of $21.4 million and adjusted EBITDA of $37.4 million. The $37.4 million of adjusted EBITDA for 2015 represents $19.1 million improvement compared to our adjusted EBITDA for fiscal 2014. Revenue in our environmental services segment increased 1.4% on an unadjusted basis for the fourth quarter. After adjusting for fewer working days in the fourth quarter of fiscal 2015, our growth was over 7% for the fourth quarter. During the fourth quarter of 2015, we experienced a downturn in activity at our customers operating within and around the oil industry. This decrease in customer activity had a negative impact on our ES revenue of approximately 3% compared to the fourth quarter of 2014. We believe the worst of this downturn is behind us, but we expect this weakness in the oil patch to remain a modest headwind for us on a comparative basis for the next few quarters. We are pleased with the profitability of our environmental services segment both during the fourth quarter in which our operating margin was 29.9% and for all of fiscal 2015. During fiscal 2015, we performed 300,000 machine services despite the downturn I just described. Our Aqueous parts cleaning program, continues to grow driven by the combination of patented equipment technology and superior and effective proprietary cleaning chemistry. As commodity prices deteriorated during the fourth quarter of 2015, our revenue and margins suffered in our oil business segment. Revenue during the fourth quarter of 2015 declined by $17.7 million or by 36% compared to the fourth quarter of 2013. This decline was primarily due to a decline of approximately 55% in the price or number six fuel, which is commonly used to price RFO, our recycled fuel oil, and a decrease of over 40% in the market price for the type of base oil we sell. During the fourth quarter of 2015, the spread between the price of the products we sell and the amount we charge generators to collect our used oil contracted materially. We did anticipate that the quarter would be difficult as our industry was transitioned from mainly a free service to a charge for used oil collection and recycling. For those of us with long experience in our industry, this is déjà vu. We were dealing with a similar market transition about 30 years ago, back in the early 80s; generators were being paid for their used oil. And then as crude prices fell in the mid-80s the industry started to charge for oil collection service. This situation continues through the 90s, 1990s, and for more than a decade until oil prices began to climb again. And so, during the first quarter in response to lower oil prices, we started to implement wide spread collection charges for used oil. We were hoping that market conditions would allow us to further increase our charges in order to restore our historical spreads. Unfortunately, the industry and customer behavior did not allow us to increase collection charges enough to fully restore our spreads. It is important that we understand the extent of the compression in spreads throughout our industry. For re-refiners base oil prices dropped by about $1.80 per gallon from mid-2014 until now. For used oil fuel market, fuel prices dropped by about $1.45 per gallon during the same timeframe. These reductions in product values necessitated the significant service fee for used oil removal that our industry has been slow to react to these changes. It was clear to us in the fourth quarter of 2015 that this spread compression was unsustainable. By the end of the quarter, we acted aggressively to increase our service fees. We also instituted several other revenue enhancement measures and cost reduction initiatives that I will describe shortly. During the fourth quarter, our average charge for used oil collection was $1.04 per gallon and this reached $0.06 per gallon at the end of the quarter, but this doesn't tell the whole story. We are pleased to report that as of now our average used oil collection charges are in the mid $0.30 per gallon range, and we continue to push these higher as we seek to restore our spreads. At this level, our service charges are generating revenue of approximately $15 per barrel on the used oil we collect. We have been able to explain to our customers that these charges are needed to maintain our oil business. After all, our oil business is a service business, and our customers understand the need to pay a reasonable fee for each one of our environmental service. We are very proud of our branch sales and service representatives who have been able to communicate this message to our tens of thousands of customers in such a short period of time. We have been aided by a terrific IT group who is getting us real-time fuel pricing data on a daily basis. We currently provide over 150,000 oil services annually to about 60,000 oil customers and more than 97% of our oil staffs are currently paying for our oil collection services, including not just small shops but many large corporate accounts. This industry leadership has a cost. We are experiencing some volume losses in some markets perhaps to competitors who are gambling that prices will soon rebound. As we lose volume, we expect to continually right size our operations to make sure that we are not left with a bloated cost structure. Fortunately our volume losses have been modest so far. In addition to the used oil collection services charges, during the beginning of 2016, we have increased our separate fees for oil filter collection, spent antifreeze removal, and the incidental oily water services performed by our oil service representatives. When the price of crude was high, our industry was typically collecting used oil filters for free, as both the used oil and the scrap steel had a significant residual value. This is not the case today. Our company collects over 100,000 oil filter drums per year, and today we are assessing an additional fee for this service over 90% of the time. Regarding the cost reduction measures, I mentioned earlier, we have acted to consolidate or eliminate high cost service route, streamline or shutdown some of the former FCCE operations, and arrange to sell locally some used oil from branches that are in high cost transport lanes. Assuming our oil product prices stay where they are today, we continue to focus on the spread improvement initiatives as well as the other revenue enhancements and cost reduction efforts, I have described. We expect to reach a breakeven operating margin in our oil business segments by sometime during the second half of fiscal 2016. Our Chief Financial Officer Mr. Mark DeVita, will now further discuss the financial results and then we will open the call for your questions.

[Mark DeVita:]

Thanks, Joe. Good morning everyone. In the environmental services segment, revenues grew $1 million or 1.4% in the fourth quarter compared to the fourth quarter of 2014 and $36.6 million or 19.3% for the year compared to 2014. Note that the fourth quarter of fiscal 2014 had 17 weeks, while the fourth quarter of fiscal '15 had only 16 weeks which means that the fourth quarter of fiscal '15 had 6% fewer working days than the fourth quarter of fiscal 2014. Our average revenue per working day in the environmental services segment increased to approximately $900,000 in the fourth quarter of 2015 compared to $840,000 in the fourth quarter one-year ago. This represents an increase of approximately 7%. In the oil business segment, revenues for the fourth quarter were down 35.6% from $49.7 million in the fourth quarter of fiscal 2014 to $32 million as a result of significantly lower crude oil prices which impacted the selling prices of our re-refinery products and byproducts as well as the price for our RFO. In fiscal 2015, oil business segment revenues decreased $25.6 million or 17.2%. Oil revenue was mainly driven by $39 million decrease in lube oil sales resulting from lower prices, $7 million from lower average selling prices for our byproducts, and $3 million from lower average RFO selling price, partially offset by higher volume. During the fourth quarter, our operating margin in the environmental services segment was 29.9% compared to 22.4% in the fourth quarter of 2014. ES margins were aided by lower solvent cost due to much lower crude oil prices during the quarter compared to the year earlier quarter. Our fourth quarter results included non-cash inventory write-down of $0.3 million. Our operating margins in the environmental services segment increased to 28.1% for fiscal 2015 compared to 25.1% in fiscal 2014. The 28.1% profit before corporate SG&A represents a record high figure for a full fiscal year. Our full-year fiscal 2015 results in this segment include non-cash inventory write-down of $2.6 million. In the fourth quarter, our oil business experienced a loss before corporate SG&A at $6 million. For the full fiscal year 2015, the oil business experienced a loss before corporate SG&A of $7.7 million. As previously mentioned, lower selling prices for oil products during 2015 negatively impacted our operating margins which was only partially offset by higher charges for used oil collection services. In addition, in this segment, we incurred a non-cash inventory write-down of $2.1 million in the fourth quarter and $6.6 million worth of inventory write-down for the full fiscal year as commodity prices declined. Corporate SG&A were 13.7% of revenues versus 17.3% in the year ago quarter. For the year, SG&A was 12.9% of revenues versus 13.5% in fiscal 2014. During the fourth quarter, we performed an impairment analysis of our goodwill. As a result of our analysis, we recognized a charge of $4 million of the write-down of 100% of the goodwill in our oil business reporting unit. At the end of the quarter, we had $70.9 million of total debt and $23.6 million of cash on hand. We incurred $513,000 of interest expense for the fourth quarter of 2015 compared to interest expense of $579,000 in the year ago quarter. We incurred $1.9 million of interest expense for fiscal 2015 compared to $0.7 million of interest expense in fiscal 2014. The increase in annual interest expense during fiscal 2015 is due to the fact that additional debt taken on as a result of the acquisition of FCC Environmental was outstanding for all of fiscal 2015 as opposed to one quarter of fiscal 2014. For the fourth quarter, we experienced a net loss of $2.5 million compared to a net loss of $9.7 million in the fourth quarter of 2014. As I mentioned earlier, our fourth quarter 2015 results included a write-down of goodwill of $4 million and a write-down of our inventory of $2.4 million due to the decline in oil prices. Our loss per share for the quarter was $0.11 compared to basic loss per share of $0.51 in the year ago quarter. After adjusting for the write-down of goodwill and inventory, non-cash compensation and integration cost, our basic income per share during the fourth quarter would have been $0.07. For fiscal 2015, we experienced a net income of $1.3 million compared to a net loss of $7 million in 2014. Our basic earnings per share was $0.06 for the year compared to basic loss per share of $0.38 from fiscal 2014. After adjusting for the write-down of goodwill and inventory, non-cash compensation and acquisition and integration costs, our basic income per share for fiscal 2015 would have been $0.50. At the end of fiscal 2015, we believe we have a strong balance sheet. Our leverage ratio at the end of the fourth quarter of fiscal 2015 reflected debt at 2.1 times EBITDA as calculated in accordance with our bank credit agreement. And this ratio was well below our maximum allowed leverage. Furthermore, this leverage is calculated before considering a $23.6 million of cash on hand as of the end of fiscal 2015. During this period of volatility in oil prices, we are grateful to stand on solid financial footing, and to have a strong ES segment that continues to generate healthy profits before corporate SG&A. Thank you for your continued interest in Heritage-Crystal Clean. At this time, I will turn control of the call over to our operator and she will advise you of the procedure to submit your questions.

[Operator:]

[Operator Instructions]. Our first question comes from David Mandell with William Blair.

[David Mandell:]

Good morning. If you guys have been running your re-refinery at the new $75 million gallon annual capacity under the fourth quarter conditions, what would sales and margins have looked like?

[Joseph Chalhoub:]

Our production for fourth quarter from a lube standpoint based on what we did run at and then you can ratchet it up from there was about $11.2 million. Now we didn't sell that much and often times our sales approximate production it was a little lower in Q4 which isn't all that abnormal given the seasonality of that business. It was slightly lower at about $10.9 million. But we set our rate was 93%, our capacity at $65 million gallon, our nameplate capacity in Q4. So, you can do the rough math and we're running at $75 million using the same rate, how much additional lube production, we would add unfortunately due to the low cost excuse me low price, base oil and it fell during the quarter. You wouldn't had a extremely sizable uptick in revenue and our margins would have been marginally better but it wouldn't have helped us avoid the negative result we had that's for sure.

[David Mandell:]

Okay, that’s helpful. And then in the environmental services business did you guys increase prices coming into 2016?

[Joseph Chalhoub:]

We had our normal timing for our price increase which almost every year since the companies been in existence is typically once a year in the last seven, eight years at least it's been around November beginning to implement it. So, we don't often see full adoption of the price increase at the end of the fiscal year, in this case at the end of fiscal '15 because we do get some optionality or flexibility to our field sales and service people if they need to work with their customers to delay implementation by a service or so, usually we will see full impact of the price increase in Q1 of the fiscal year. So we did have roughly our normal timing and we would expect to see the normal improvement in top-line that we traditionally have seen.

[Operator:]

Our next question comes from David Manthey with Robert W. Baird.

[David Manthey:]

I'm really interested in the competitive landscape across both sides of the business. When you look at the ES business first of all any changes in the competitive landscape as it relates to the parts washers or drum waste collection and I'm thinking SK under clean harbor's ownership or PSC owned by Stericycle. Any changes in those two or anything else we should think about as it relates to the environmental side?

[Joseph Chalhoub:]

Yes, this is Joe here. I am going to answer your question. We haven't clearly seen anything from the Stericycle PSC and they also really don't work in the same market area dealing with smaller and medium sized customers and they're not in the cleaning in any measurable way. Relating to clean Harbor, Safety-Kleen, yes we continue to compete with the Safety-Kleen, clean harbor and but we don't -- we haven't seen any changes from the activities that we have typically enjoyed with our same pricing flexibility for the ES services and our typical growth level that we had for that business.

[David Manthey:]

Okay. And then over to the oil business. When you look at the past two or three years and think about the capacity for collecting used motor oil, have you seen that decrease in any material way? And then as you look out over the next three to five years could you talk about how you see that playing out given that I would assume that alternative uses for used motor oil will continue to diminish over time. Wouldn't that leave you and the remaining re-refiners that are also collectors as being more competitively advantaged as the guys that are collecting it up for fuel oil start to fall by the wayside?

[Joseph Chalhoub:]

Well we hope so and but looking at the history, we've had the first national price dropping significantly few years ago, close the door on lot of local used oil being burn in the United States in asphalt plants and local industries. That I see this was a big factor in market forces. And this resulted in consolidation, several kinds of acquisitions and consolidation in our industry. And that has happened. We have acquired FCCE and then Safety-Kleen has done their own acquisition. So where we are today versus a few years ago, we've seen quite a change in landscape and that change is even greater when you go back to where the market was 20 or 30 years ago. And in addition to this, we feel that offering multiple services to the same customers, the same type of customer is important today. And the end of the day they're not a lot of players that have been able to stay on top of the complexity of parts cleaning business where in today's environment versus 20 years ago there is a long menu of different machines in particular. Chemistry development has made quite a bit of changes here in the United States over the last 10 years. Greg, do you want to add anything more?

[Greg Ray:]

No I think you covered it pretty well, Joe. I think that the other part of the question that the first question that David asked about in terms of competitive environment you spoke about environmental services and we didn't really -- you didn't touch on oil but clearly in the script that we talked about that and we had gotten now we think significantly ahead of most the rest of the industry in terms of charging for used oil. We understand the economics of the business pretty well and we think that other people who aren't establishing charges somewhere near the level we are probably hurting and suffering more severe margin compression than we are. And we're expecting them to figure that out. So that's all I have to add.

[Operator:]

Our next question comes from Kevin Steinke with Barrington Research.

[Kevin Steinke:]

So you mentioned expecting to reach breakeven in the oil business by the second half of 2016, based on current conditions. So just wondering I guess in terms of magnitude how much more you would have to increase the average per gallon charge to kind of get to those breakeven levels that you're forecasting?

[Mark DeVita:]

This is Mark, I'll let Greg and Joe add something when I'm done if they want. But it's obviously a moving target Kevin but I can tell you even where we're at now, but Greg mentioned how we're leading market Joe did in his prepared remarks as well. We have done a lot of work in Q1, so far to gain back spread or reduce the spread compression that's clearly evident in our results for Q4. But there is more work to be done and it's not by couple of cents a gallon, I could say that. But depending on how oil product prices typically base oil but also a number six in our different RFO prices move that can always change that equation. But where we're at now and where Joe indicated we're at, if things didn't change we expect to have improvement in that pre-price in order to get us to that point.

[Kevin Steinke:]

Okay. And I guess you feel like you can balance increasing charge per gallon with maintaining reasonable collection volumes to feed the expanded capacity as a re-refinery, I mean you feel good about balancing that out?

[Mark DeVita:]

Yes, we continue to bring in third-party volume as well and it was about 17% of the feed for Q4 and that's in the same range it's been for a while. So that is a component, so it needing to get the feed but Greg had mentioned earlier and I think Joe in his prepared remarks that we also need to be as nimble as we can on rightsizing our infrastructure and that's something that is a little bit of a challenge because even though we get daily information as Joe mentioned which is fantastic as far as street conditions, you don't want to have a kneejerk reaction to one or two days information. You're talking about our sales and service reps, our employees that were working really hard and to make those decisions to rightsize operations is one we're prepared and have already started to do. But it's got to be a continual effort. So there is a balancing act there.

[Kevin Steinke:]

Okay. It makes sense. On the environmental services margin obviously a nice year, a record year in 2015. You did benefit somewhat from the lower solvent cost, lower fuel prices. What's your directional outlook as we go into 2016, I guess you might lapse some of those benefits from lower fuel and solvent but how are you thinking about where you can maintain that as you look into 2016?

[Mark DeVita:]

I think maintain is a good word to look at or a good word to use. You have your minor puts and takes on either side of it. I don't think you'll have the tailwind like you just indicated anymore driven by lower crude prices, and as far as aiding the margins, all the integration I mean you see some of that in the improvement from the Q4 2014 margin of 22.5% where we're at, that the integration synergies and all the efficiencies gained there that step up if you will and efficiency and routing or whatnot will not repeat itself. But we will have ongoing efficiencies, other than in the next couple of quarters, the headwinds, the impact that we saw in our customers in the oil patch on top-line and anytime top-line is not growing as much you're not going to get quite the leverage on the overall business. So that would be a mitigating factor as we downsize some oil operations. There is several sites in our network that are shared sites. So you might have a tiny impact on or headwind there as if there is shared cost and a facility has three people but they still need even though we have no oil operation there any more if we would downsize it but we still have to have an operation to support the ES business. You might have some cost on that are allocated ES be a little higher, so that could be a slight headwind as well. But I think been in the neighborhood, that we've been at and again coming into Q1 as you probably remember Kevin there, it's always going to be several hundred basis points lower. But we wouldn't expect huge improvement because of the oil industry impact and the other headwinds sustained in the general areas probably a good target.

[Joseph Chalhoub:]

I think part of our thinking; we obviously put additional price increases here in the fourth quarter. However when we look at our margins, we're happy where we are. I think what is important for us as we move forward; we want to make sure that we continue to grow our ES business and our target is to grow that to double-digit. And so we are invested, we continue to invest in opening up branches, we haven't totally saturated landscape as far as branch locations and we're adding additional environmental services in these locations, adding new staff etcetera. So driving the top-line at this stage, where we are in the high 20 margin is the guiding force driver.

[Kevin Steinke:]

Okay, great thanks for that detail. And I was curious about the 93% capacity utilization at the re-refinery in the quarter. Was there any minor disruption to utilization just from getting the expansion completed and should we expect kind of the utilization to tick up a little bit going forward?

[Joseph Chalhoub:]

Yes, we did have during this last phase of completion of our expansion to 75 million gallons, we did have the several shutdown to do tie-in and there have been some issues as we did this, in addition to the regular maintenance of the refinery that's why we produced at the rate of 93%. Now that we have the capacity to 75 million, we're going to be guided by where we're with the oil spread improvement and we also have an option to move forward from the 1,000 branches that are going into the number six fuel market to Indianapolis we need to look at the relative economics of freight and the value of the lube oil. So we got options, we didn't have year-and-a-half ago. So we'll be guided with this and there is no question that we will eventually get to fully utilized capacity of 75 million, incremental capacity is economical clearly to utilize on an incremental basis.

[Operator:]

And our next question comes from Michael Hoffman with Stifel.

[Michael Hoffman:]

Hi, Joe, Greg, and Mark. Thank you for taking my questions. I would start on the used oil business. The slight end of base oil market seems to be oversupplied. Do you see any activity on the generator side of potential shutdowns to do maintenance like what we did in January on one line to try and clear that inventory before we get into the seasonal stronger demand for base oil?

[Greg Ray:]

Well we see group one plans were, first of all lube oil today is international follow the international market and we have seen group one announcement for group one plant shutdown overseas and I think that has balanced the issues in North America. The oil industry also drag their other choices between making lube oil and making distillate fuel and feeding this to further crack to lighter product. And we also track, for us; we track the spread between what is called vacuum gas oil and lube oil. I would say Michael that this spread has been relatively consistently the last year or so around $0.40 again and we’ve seen an uptick prices with large reduction in the price of lube and today it's getting us the same spread of about $0.40 a gallon.

[Michael Hoffman:]

Okay. And then with regards to the breakeven commentary if I read through Mark's comments about the outlook through the year what I'm hearing is you need somewhere between a nickel-and-dime of incremental pricing all other things being equal to get to that breakeven is that the right way to interpret what Mark was saying?

[Joseph Chalhoub:]

Michael, it's a good question, I'll let Mark answer the question. I think you’re in the ballpark.

[Michael Hoffman:]

Okay am I in the infield or in the outfield?

[Greg Ray:]

Michael obviously the big factor in here is where things are is the last few days crude seems to be firming up and it may take some time, if it continuously firm up, it may take a month or two before we start seeing base oil moving upward. But we know, I think the big message in here today we wanted to share with you is we've decided in the fourth quarter that we're going to go in and take aggressive steps to restore the spread and the spread hasn't been restored but there is more work to do.

[Michael Hoffman:]

Okay.

[Greg Ray:]

And we track the spread on the lube oil but we also track the spread on the number six fuel was that still a piece of the market in the United States.

[Michael Hoffman:]

Fair enough which lead to my next question I mean candidly at the end of the day you really just need enough oil to fill the plant in Indianapolis, if you don't have anything left over for RFO that's not necessarily such a bad thing if you can continue to drive the pricing up on the charge for oil side versus the offset of not having any RFO sales. I mean we shouldn't be alarmed by that if that plays itself out because you're doing because it's the best economic outcome?

[Greg Ray:]

Well you've got a good point Michael and what our top process are other issues relating to some markets where we can get because of their freight. And so on the some fuel markets we want to protect but basically large movement into the number six large shipments of products, if we don't have that volume, it's not really going to hurt us from an economical point of view.

[Michael Hoffman:]

Okay. And then shifting gears to environmental services, if I understand the thoughts about guidance, I should look at the first half is having about 3% pressure on the oil and gas end market but the remainder of the business seems to be growing low-double-digits. And then as I get into the second half, I transition back to the overall businesses low-double-digits growth?

[Mark DeVita:]

I think that's right, the kind of fine line is probably sometime in Q3, so and we talked about it in our call in October that we had started to see something it obviously got worse at the quarter as we are already in Q4 at that point. But in general, I think you have a good feel for what we would expect.

[Michael Hoffman:]

Okay. And is it reasonable to assume then that you hit and breakthrough that $1 million average daily revenue number?

[Mark DeVita:]

Well I mean you know we're at as far as what we just talked.

[Michael Hoffman:]

You're $900,000.

[Mark DeVita:]

Based on what we just talked about, so I think your comment as far as what we expect on top-line growth that you just laid out are good.

[Michael Hoffman:]

Okay.

[Mark DeVita:]

Accurate so you could just apply that math.

[Michael Hoffman:]

All right. Fair enough and then I just want to be clear on your leverage, you're giving us a leverage ratio that was not net-net, it was leverage ratio on gross debt. So it’s better when I do the net-net calculation to put cash out? Okay that is what I just want to make sure I understand, okay. Thank you.

[Mark DeVita:]

You’re exactly right. Exactly, right.

[Joseph Chalhoub:]

Thank you, Michael.

[Operator:]

[Operator Instructions]. Our next question comes from Sean Hannan with Needham & Company.

[Sean Hannan:]

Yes hi, can you hear me?

[Joseph Chalhoub:]

Hey, Sean.

[Sean Hannan:]

Hi I don’t know what happened I think somehow I was booted out of the queue. A few questions here. There were some aspects of the commentary you guys provided that kind of went out of my phone a little bit. Administratively just want to check what were the gallons sold in the quarter, what did you observe as the average sale price of base oil during the quarter and what would you say is that price today? I know it’s been near above $0.70 and perhaps a little bit lower. Thanks.

[Mark DeVita:]

Hey Sean, this is Mark. I'll try and hit all those things; we typically don't give out what our actual selling price is.

[Sean Hannan:]

Spot volumes in terms of your observation.

[Mark DeVita:]

Okay. From a volume standpoint, we did about I think I had mentioned a little earlier almost $11 million about $10.9 million in volume on base oil. We had a little less than $3 million on byproduct; RFO was about $9 million volume wise. For base oil spot for the quarter you said you wanted and what was the other one?

[Sean Hannan:]

In where you're observing it now.

[Mark DeVita:]

Yes, let me dig that up for you, Sean. I don’t know if you have any other questions, you want to shoot them up.

[Sean Hannan:]

I certainly do. So while you take that up, can you folks help to explain to me on the environmental services side, why we're seeing that pressure as the consequence of the oil fields obviously that's been under pressure for some time and I'm just trying to better understand how that relates to volumes or the activity you have on environmental services, thanks.

[Greg Ray:]

Yes, I'll be glad to take a stab at that one Sean, this is Greg speaking. Think about some of our customers that are involved in the oil path related to drilling or fracking activity and they use cleaning solvent parts cleaning services and generate waste from the business is going well. And when their business as happened in the last year goes through a steep decline, they would generate less waste for us to pick up and need less parts cleaning services but often there is a short burst of activity when they are in the shutting down or slowing down mode, when they bring back a lot of equipment and actually generate more waste. So our observation of that drop off sort of lag by bringing back equipment, they're cleaning things off, they're putting it into storage and we keep having decent business until they basically say okay now well our rigs are in warehouses or something like that and we're not doing any more of that work right now and then our activity goes way down. So we service companies that are related to fracking and oilfield work it's not a huge segment of business but for them obviously the drop off in activity has been so severe that it really makes a dent in what we're doing and geographically that has impacted us most strongly in the South Central market area making sort of see it and measure it and have a good understanding that that's the drop off our business related to decline, related to the oil drilling and production activity does that make sense?

[Sean Hannan:]

Yes sure, I think it was the degree of the lag that I had more questions around but I take your explanation around how you service them particularly as they shutdown now connects the dots makes better sense.

[Mark DeVita:]

Hey, Sean this is Mark, real quick. So for Q4, we get a couple. We subscribed a couple market papers or newsletters and our Q4 these stock market average was around about 60 and from one of the one publication we look at and from that same if you look at some of the weekly published information from last Friday that equivalent number and again this is what they call spots which again is lot of that just gauged from market enquiries. So I doubt they're actually seeing invoices or anything but it's a good indicator but that was down to around roughly above 35 as of last Friday, if you take this and 100, and then 200 averages which approximates material that we sell, so, typically re-refiners going to sell at a discount to that number as you know.

[Sean Hannan:]

Right. And so, actually and as a follow-up to that and one of them is a question on the discount, I believe a lot of re-refiners typically would sell, 10% to 15% discount to the spot, is still that still relevant today and perhaps is there a scenario given how low pricing has gone that you can may be tighten that discount?

[Mark DeVita:]

Well I think the discount range is still there. I don’t know if Greg or Joe want to talk about the future prospects whether, whatever the motivator might be to try and close that gap between the producers.

[Joseph Chalhoub:]

Well the gap has shrunk, when lube oil was being sold at $4 a gallon that's 10%, 15% was much higher number than what it is today and when lube oil is less than half that price.

[Sean Hannan:]

Okay and then getting back to the spreads, I’m just trying to reconcile some commentary I've heard. So it sounds like I believe what I've heard that the spreads were really quite compressed in quarter and were still looking to improve those spreads today. But it feels like I've heard that we're actually now on the spread expansion side of the game and there was some commentary around spreads typically $0.40 a gallon. I almost thought I heard that it's similar to that today too. So not all of this is connecting dots for me if you down the notes incorrectly but can you help me to understand that part better?

[Mark DeVita:]

Well I’ll give a little commentary first, Sean this is Mark. Spreads were compressing especially at the end of the Q4 for us. We had continued headwinds and we still had I think in our remarks talk about so far to the first half, first couple of periods base oil was down on a spot basis was down a little less than 10% but still down. So it depends where you measure from have we helped to restore some of the spreads through our aggressive moves in charge for oil. Yes, but we still have more work to do and it depends where your starting point is. But for us if you look back to when we had roughly a breakeven it's slightly positive operating margin before corporate SG&A in Q3. We still have work to do to get back to those spreads.

[Operator:]

And I'm not showing any further questions at this time. I would like to turn the conference back over to our host for closing comments.

[Mark DeVita:]

No further comments.

[Operator:]

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.