Heritage-Crystal Clean Inc (HCCI) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Heritage-Crystal Clean, Inc. third-quarter 2016 earnings conference call. This call is being recorded.

(Operator Instructions)

Some of the comments we will make today are forward-looking. Generally the words may, 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 statements after this call.

Please refer to our SEC filings including our annual report on Form 10-K as well as our earnings release posted on our website for a more detailed description of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by visiting the investor relations section of our website.

Also please note that certain financial measures we may use on this call such as earnings before interest, taxes, depreciation and amortization or EBITDA and adjusted EBITDA are non-GAAP measures. Please see our website for reconciliations of these non-GAAP financial measures to GAAP. For more information about our Company please visit our website at www.crystalclean.com.

Speaking today from the Company are the founder, President and Chief Executive Officer Mr. Joseph Chalhoub, the Chief Operating Officer Mr. Greg Ray and the Chief Financial Officer Mr. Mark DeVita. At this time I will turn the call over to Joe Chalhoub. Please go ahead, sir.

Thank you and welcome to our conference call. Last night we issued our third-quarter 2016 press release and posted it on the investor relations page of our website for your review. This morning we will discuss the financial statement and our operations in the third quarter and we will respond to questions you may have relating to our business.

Our third-quarter revenues were $81.9 million compared to $82.7 million in the third quarter of 2015, a decrease of 1%. Year to date revenues decreased 3.5% to $240.9 million from $239.7 million during the first three quarters in fiscal 2015. The majority of the year-over-year revenue decline is due to lower selling prices of our oil product, primarily driven by lower crude oil prices in 2016 compared to 2015.

Our 2016 third-quarter EBITDA was $8 million or 9.8% of revenue compared to EBITDA of $9.2 million or 11.1% of revenue in the third quarter of fiscal 2015. This decrease was due to unusually high legal and other expense we incurred during the quarter, which Mark will describe in more detail shortly.

During the third quarter, environmental services revenue $0.8 million or 1.6% compared to the third quarter of fiscal 2015. Environmental services revenue decreased $1.9 million or 1.2% for the first three quarters of 2016 compared to the first three quarters of 2015. The revenue declines were primarily due to the downturn in activity at customers engaged in and related to the energy sector as well as lower energy surcharge revenues.

We are working on several initiatives to improve our revenue growth in this segment. We continue to focus on our cross-selling initiatives to better leverage our existing customer relationships.

We also have opportunities to expand geographical coverage in Western US and Canada. In addition, we are adding field sales resources and targeting tuck-in acquisitions to stimulate our environmental services growth. We expect to resume revenue growth in the environmental services segment during the fourth quarter.

During the third quarter of fiscal 2016, oil business revenues were flat at $30.6 million compared to the third quarter of fiscal 2016. During the first three quarters of fiscal 2016, oil business revenues decreased $6.9 million to $84.8 million in the first three quarters of fiscal 2015.

The revenue decrease was mainly due to lower selling prices for our base oil and RFO product, which was partially offset by higher base oil sales volumes. The decline in revenue was further offset by the significant increase in used oil collection charges we achieved during the first three quarters of 2016.

We are very pleased that we were able to achieve positive operating margin in our oil business during the latest quarter. Our third-quarter operating margin in the oil business segment represents a record high and is the second straight quarter we have been able to achieve positive operating margins. We were able to achieve this primarily due to the increase in average selling price of our base oil of almost $0.25 per gallon during the third quarter compared to the second quarter of fiscal 2016.

Our Chief Financial Officer Mr. Mark DeVita will now further discuss our financial results. And then we will open the call for your questions.

Thanks, Joe. I appreciate the opportunity to discuss HCCI's third-quarter 2016 results with our investors today. As Joe mentioned earlier, there was a slight decrease in revenue in the environmental services segment during the quarter.

This decrease was primarily due to diminished activity of customers in and around the energy sector as well as lower energy surcharge revenue. Compared to the latest quarter, comparing the latest quarter to the year-ago quarter our branches that operate in markets that are mostly impacted by the energy sector downturn experienced a decline of approximately 17%. The good news is that our other branches, those with minimal exposure to the energy sector, continued to show year-over-year growth in environmental services segment revenue of approximately 4%.

The other good news is that the energy sector appears to have bottomed earlier this year, so we see the comparisons getting easier going forward. For the third quarter our average revenues per working day in the environmental services segment decreased slightly from $900,000 in the third quarter of 2015 to approximately $885,000 in the third quarter of fiscal 2016.

Our profit before corporate SG&A expense in the environmental services segment during the third quarter improved to 29.4% compared to 28.7% during the third quarter of fiscal 2015. Our profit before corporate SG&A expense for the first three quarters of fiscal 2016 was 28.2% compared to 27.3% over the first three quarters of fiscal 2015. We are especially pleased with these improved margins considering the challenging business climate.

As stated, revenue in the oil business segment was flat during the third quarter compared to the third quarter of fiscal 2015. From a profitability standpoint, we experienced profit before corporate SG&A expense of $1.7 million in the oil business segment during the third quarter of fiscal 2016 compared to $0.6 million in the third quarter of 2015. The increase in profitability in the third quarter of fiscal 2016 compared to the third quarter of fiscal 2015 was primarily due to an increase in used oil collection charges of approximately $4.6 million.

Corporate SG&A expense was $11.6 million or 13.1% of third-quarter revenue, up from $10.7 million or 11.9% of revenue in the year ago quarter. For the first three quarters of this year, corporate SG&A was $36.9 million or 14.3% of revenue compared to $33.9 million or 12.6% of revenue in the first three quarters of 2015. The increase in corporate SG&A expense was due to unusually high legal expense of $2.1 million during the third quarter and $5.5 million for the first three quarters of fiscal 2016.

The majority of these legal expenses pertain to matters stemming from our acquisition of FCC Environmental including compliance issues that predate our acquisition and an arbitration that we initiated against the sellers to resolve certain routine post-closing matters and to recover related legal expenses as governed by the stock purchase agreement. During the third quarter we recognized other expense net of other income items of $1.4 million. Included in this is $1.6 million of expense to settle compliance issues which predate our acquisition of FCC Environmental. With this settlement we expect that we have recognized the majority of the cost to be incurred related to the various legal matters stemming from our acquisition of FCC Environmental.

Our balance sheet remains strong. At the end of the quarter we had $66.6 million of total debt and $29.8 million of cash on hand. We had very good cash generation of $9.6 million and cash flow from operations during the third quarter of fiscal 2016, which represents an increase of 26% compared to the third quarter of fiscal 2015.

We incurred $463,000 of interest expense for the third quarter of 2016 compared to interest expense of $404,000 in the year ago quarter. For the first three quarters of fiscal 2016 we incurred $1.432 million in interest expense compared to $1.366 million in the first three quarters of fiscal 2015. For the third quarter we experienced net income attributable to common shareholders of $2.3 million compared to net income attributable to common shareholders of $2.7 million in the third quarter of 2015.

Our basic and fully diluted income per share for the quarter was $0.10 compared to $0.12 in the year-ago quarter. Our year-to-date net income attributable to common shareholders was $2.4 million compared to $3.7 million for the first three quarters of fiscal 2015. Earnings per share for the first three quarters of the year was $0.11 compared to earnings of $0.17 per share in the first three quarters of fiscal 2015.

Our net income during the third quarter was negatively impacted by legal fees and other expenses stemming from our acquisition of FCC Environmental. We believe a majority of these costs related to our acquisition of FCC Environmental have now been recognized. Excluding the impact of these expenses, our adjusted net income attributable to common shareholders for the third quarter would have been $0.22 per share.

Thank you for your continuing interest in Heritage-Crystal Clean. At this time I will turn control of the call over to our operator to advise you of the procedure to submit your questions.

(Operator Instructions) Michael Hoffman, Stifel.

Thank you so much. Good morning Joe, Greg and Mark. Thanks for taking my questions.

So if we could start with environmental services. If I understand your comment, Mark, in your prepared remarks the ex-energy exposure you are up 4%.

That's correct.

How does that compare to what you thought it should be? And, more importantly, what's the trend in the last four weeks versus the first eight weeks of the period?

I might let Joe or Greg give a little more color to the granular question you had, but in general that was pretty much in line with what we had expected. You probably remember as we have been measuring the ex-energy or the branches performance that are not really as impacted or minimally impacted by the energy sector, it's been roughly in that 4%, 5% range. We might have thought it might have been 100 basis points or less higher but it's generally what we expected.

If I can add something, Michael, this is Greg speaking, when we talk about ex-energy that could be a little bit misleading, and I just want to run through with you what we've done in terms of the breakdown here. We can't judge exactly how many of our customers or which customers are impacted to some degree by the downturn in oil exploration or fracking.

So our analysis is based on geography. And we've identified a handful of branches that we have in the oil-producing region of the country, the Texas, Louisiana, Oklahoma area. And those are the branches that we are talking about as being most heavily impacted by the energy downturn and where we see the most negative results.

But that's not to say that when we look at our other branches, the one we referred to as ex-energy, if they don't also have some exposure to the downturn in the energy business. So the 4% figure still has some very small headwinds related to energy, we are just not nearly as impacted in those markets. Maybe Pennsylvania or the Mid-Continent area are still areas that are affected, but maybe not as strongly as the areas that we've determined to focus on and identify as really the key areas that have felt the negative impact.

So everybody feels something. Even a printer in Wisconsin may see reduced volume because he is not doing as much work for customers that are in Louisiana. But we can't discern those differences.

So, Michael, part of your question here is just to add, give you a little bit of color here, this current quarter we are seeing positive movements in the first few weeks. And so hopefully this will remain the same trend and our expectation earlier this year that we would see some growth in the fourth quarter compared to a year ago. So we are optimistic about that, but we will see how the quarter goes.

The other thing relating to ES is we have, starting at the beginning of this year we had taken measures to add resources to this segment of the business. And whether it's sales management or some route tracks or expense geographically, and these things historically have taken a bit of time to generate the revenues, but we know that these are in place and over a period of time we should be able to see a resumption of our growth.

And if I could tease out one part of the question, so you've suggested we've seen a turn to positive in 4Q. Did you end the quarter positive in the last week or two so that trend was building out of 3Q?

Well, we don't really get to look at results on a week-to-week basis. But on a period-to-period basis there has been some trends in the quarter, the third quarter, but a nice increase in the first few weeks, the first period I would say of Q4.

Okay. So if I could shift gears to the used oil business, you are providing a date and point beginning in 2Q of stop fees and charge for oil. It was $8.3 million for the first half, it's $13 million approximately, $13 million second half.

So you are at $4.7 million in the third quarter. Would that trend be one that's continually improving on the cents per gallon basis or is it improving because you collected more?

Well, for the quarter -- yes, Michael, this is Mark -- for the quarter we technically were up a penny.

Okay, that's a good trend.

As far as further improvement, here as we go forward, as you know depending what happens with the price of crude, so we are not expecting at the current price of crude that we will be seeing much increases here in the next couple of quarters. So that's really where we are and to a large extent with the crude has gone up by $4, $5 a barrel, people are selling recycled fuel oil have seen some revenue increases and we are, obviously, competing with them on the used oil service.

And then the last items on this used oil side, is there planned maintenance in 4Q that you could frame? Based on that maintenance, the expectation of the utilization would be what? Because you've dipped in 3Q from middle upper 90s, in 2Q to 92, what's your thought about your utilization in 4Q based on what you know it is planned?

We should be doing better than that. We've had a schedule important maintenance in the third quarter and we have maintenance throughout the year.

But the maintenance in the third quarter was scheduled where we've also made some changes and we had scheduled a longer shutdown than usual. So hopefully barring any surprises we should be able to deliver something better than what we did in the third quarter.

And then the last one for me, and I realize this is a little harder to get your hands around, but so Motiva has pulled back about $0.15 a gallon. Would you feel that this or this comment whether you think this is an appropriate seasonal adjustment? Or is there anything more to it than normal seasonal pattern that would be happening at about this time of year?

I have my thoughts on this and our people and I will tell you comments from other plays in the industry. We just came back from a yearly conference of the lube manufacturers, and the industry is surprised because there were some noises of crude going up by $4, $5 a barrel, then an increase.

People did not follow, I'm talking about the majors, did not follow the Chevron, there was an increase by Chevron. And rather than having follow Chevron they dropped their price and so everybody in the industry is surprised. And it's hard to predict this, but if crude stays where it is or moves a little bit higher I just don't see how can Motiva justify their drop over an extended period of time.

Okay, thank you.

David Mandell, William Blair.

Good morning. Can you guys discuss the trends in the selling prices that you are getting for the lube in 3Q and at the beginning of 4Q?

Well, I can give you some of the history. This is Mark, David. We're up from Q2.

At least from a market standpoint it's 11%. We don't get into the fine details on our numbers. But ours tend to, in general, on a percents a gallon basis follow usually what you see in spot.

That's down still, though, over 10% from the year-ago quarter. So the trend was technically up. Based on what Joe is saying and the previous caller alluded to there is probably some pressure downward.

What we've seen the last two weeks when we look at some of the information from the parties that we subscribe to get spot market information is that it actually has been relatively flat, spot has, and N100, N220 or the light viscosity products that are similar to what we are making. So I don't know what the next coming weeks portend. Greg and Joe can give you their take on that.

But we haven't seen much movement lately. I don't know if that means there's going to be additional movement because of what Motiva did or not.

I would like to add that most of our volume, the customers we have track the spot market rather than the posted and the spot market hasn't moved, which reflects the whole industry view of Motiva downward move. But then we do have some contractual volume that is formulated around the posted prices.

And so we've experienced overall a bit of a reduction in our blended base oil selling price. But nothing close to the $0.15 a gallon that Motiva drop reflects.

In addition, I'd like to highlight that we do sell outside of base oil, we do sell other hydrocarbon, mainly fuel, whether it is fuel produced out of the refinery or used oil RFO. And these are showing an increase in selling price because crude went up by $4 to $5 barrel and usually fuel tracks crude oil.

Okay, and then how would you feel about regarding how your plant is operating? Is there any more efficiency that you can get out of it or at this point is it just a matter of how the lube spreads move?

No, we definitely have additional efficiencies both in throughput and cost reduction. And we should be able to see this in the next few quarters.

Thanks for taking my question.

David Manthey, Robert W. Baird.

Thank you. Hi guys. So the current quarter's underlying performance is clearly encouraging.

Can you also give us a longer-term view on the Company's growth prospects? And specifically I'm thinking about within EF are there still the opportunity to expand services to existing customers and get into new geographies and so forth?

Second, when you look at the oil business can you talk about the medium-term plan or the longer-term plan to grow there? Or is the plan just to run the re-refinery at 100% and hope spreads are favorable?

David, this is Greg. I will start with the environmental services question. We definitely think there is good opportunity for us to continue to grow the ES segment. We are not at all discouraged about the future there.

One of the things that I think Mark or Joe mentioned was cross-selling. And you know that we've got roughly 100,000 customers and we've been really trying in the last half year or so to figure out whether we can develop programs or initiatives to do a better job at selling more services to the customers that we already have.

That's particularly a ripe market opportunity because quite a few of those accounts or customers came to us in the last few years through oil acquisitions where the only service that we were providing was used oil collection. And yet these customers often need parts cleaning services, drum waste services, antifreeze recycling services or other things that we can do for them.

And I think we are starting to get a little bit better at cross-selling. We are developing metrics and tools for that. I'm not going to give you any quantitative forecasts for that right now, but that's one of the things that we think helps us improve our growth rate in ES going forward.

In addition, we continue to look at adding new services. The most recent one that we've been enjoying and think has good prospects has been our antifreeze business or service. We got into that a couple of years ago through a couple of acquisitions.

It has legs. We are doing a good job of growing that organically. We may find additional tuck-in acquisitions opportunities with that.

And it's something that the majority of our customers can take advantage of. And so we think there's a big opportunity for us to keep building on that.

We have geographic expansion back on the menu. We took a bit of a hiatus while we were digesting the FCC acquisition and didn't do a lot in adding branches. We are starting to open up some new branches and get back on track for growing a little bit more geographically, although there's not a huge amount of runway for that.

As you can imagine our map is getting near to filled in. But there is still quite a few markets, particularly on the Pacific coast as well as in Canada, where we think we can resume growth and add more locations.

So those are just a few of the things we are doing with environmental services. Joe, did you want to handle the oil question? I think it was sort of along the lines of what we can do to improve the business beyond just waiting for market pricing to improve.

Yes, I can answer this. Relating to the oil business we do have plans to further improve the oil business as far as outside of the pricing and spreads and cost reduction.

But our view at this stage is to hold back on these capital investments until we see a better return and get some of the efficiencies already in place. But we do have on our books capital projects with short-term payout. We would work on projects that are a couple of years payout, but at this stage we are holding back to see better results in oil.

Did we cover what you wanted to hear, David?

You did. Thanks, Greg. Just one other question.

As it relates to the improvement in your charge for oil efforts it seems like there is a distinct difference between getting a higher price per gallon versus charging a stop fee in terms of the stickiness of that type of an arrangement. Can you talk about your current mix relative to the stock fees? I mean is it a bigger percentage of the improvement you are seeing and if not is that something that you plan on doing going forward?

I will take a stab at that. From the operator's point of view, or a marketer's point of view I guess is a better way to say it, we want to get our average price up or at least maintain it where it is. And we have been willing to be flexible about whether we get that pricing through a per gallon charge or a stop fee or a combination of those.

We have customer segments who seem to be strongly opposed to paying a high price per gallon but are happy to pay it as a stop fee and the opposite. So we are pricing based on what we think the market will bear and we've got a mix of those and it really doesn't matter a lot to us. If somebody says I want to go from a per gallon to a stop fee or vice versa, we are just flexible in making the changes.

We think that in general our competitors are often similarly oriented to just getting the price in whatever mechanism or form they can. So we haven't seen that there's an overwhelming trend that companies that are in our industry are all going to either a stop fee or a per gallon price. Is that what you were asking?

Yes. That's great. Thank you very much.

And I can add, we do track that. It's just like Greg indicated with his comments we don't see that's all that meaningful. It's roughly half-and-half if you had to break it down, our charge revenues.

Sean Hannan, Needham & Company.

Yes, good morning. Thanks for taking my question here folks and I'm sorry if it's going to seem like I'm beating a dead horse. First, on the environmental services I think as seen by a number of the questions in the call analysts had picked up on that 4% growth.

As I stepped back my thought process had been this is really more of an upper single-digit to double-digit growth business for you and that we've had some hiccups this year but should be on path to getting back to an upper single-digit to double-digit growth by 1Q, 2Q. There's a pretty good delta in order to accomplish that.

I realize there's going to be some better comps once we get into the new year, but just trying to understand do we still have that as an opportunity and really what drives that? Is the expansion of services actually able to be ramped up that quickly to achieve those types of numbers? How do we really think about over the next couple of quarters the type of growth recapture that we can accomplish?

This is Joe here. Our objective is to drive this thing significantly more than the 4% that we've seen and move that up at the high single digit, I don't know about double digit. We already have a good position in the marketplace without adding new services to our customer base.

But we also need to recognize that our organization for two or three quarters late last year and early this year were at the branches preoccupied with fixing the spread on the used oil. And so that has affected us a bit. But we are not going to be satisfied with a 4% increase in ES revenue and we are working on many angles to try to boost this throughout the Company.

So getting back to an upper single-digit type of growth number if I interpret your comments correctly might seem a little bit aggressive to accomplish by 1Q, 2Q? Or did I not interpret correctly?

No, I think I would agree, I would agree with you. And we first start putting some growth in place overall for the Company versus what we've accomplished here recently and keep driving it.

We also have our annual price increase that will be going in this quarter. So in the past we've had some volume losses that we've described here in the branches that are quite involved with the energy sector. And I think we've reached, things have been pretty steady, from a comparative point of view we won't see that repeating.

So in our regular yearly price increase and the initiatives that we are taking, new branches, more services into some of the existing branches and the cross-selling we should see our growth again. And we don't at this stage promise high-single digit growth in the beginning of next year. So it will be a step-by-step improvement.

Okay, thank you. And then to shift over to the oil business, now maybe I had the wrong interpretation around how some of the spread management was materializing for you. The margins, while an accomplishment in getting an improvement 3Q versus 2Q, still seemed at least a little bit lower than at least my expectation.

I had the impression that we had more stable pricing environment that was a bit improved quarter over quarter and some better stability in terms of that charge for oil as well as the further implementation around some of the fees that you are charging. So can we get a little bit more color in terms of what we can accomplish from a margin standpoint as we head into or have started the fourth quarter here and, obviously, where the costs and the price for the base lube oil market is going to have a pretty material dictating impact just want to get some better clarity around how some of this improvement materializes? And I think this piggybacks on an earlier question.

Yes, we are expecting an improvement. There is pressure here with Motiva but we are expecting an improvement. We have had in the quarter, the third quarter as we said earlier a shutdown, it was a major shutdown, it was not just a regular shutdown.

And so our operating costs for the quarter was higher than the trailing few quarters ahead of it. So that's one factor.

We talked earlier about the throughput and the improvement in throughput from the 92% should help us. Between these lower costs and higher throughput we are expecting improvements in margins, contribution margins for the oil business. The reduction on the Motiva so far is more than balanced by the increase in the value of the non-lube oil products that we are marketing.

Just to add to Joe's comment, again, we usually have some smaller, more normal shutdowns in most of our quarters. But as far as the margin impact versus Q2, between the extra catalysts we need to do for some of this work and then extra maintenance and whatnot, you are talking a little less that 4% headwind on the margin quarter over quarter sequentially. So there is definitely room for improvement there.

Okay, thanks. And then last question, this should be a quick one.

From an SG&A standpoint, it looks like next quarter should be much more normalized taking out fines, restitution, legal fees. How should we think about SG&A moving forward here because it seems like that's becoming much more optimized? Thanks.

I think so. This is Mark. I think you are right.

Remember from a pure accounting standpoint the fines and restitution were in the other category. So it's really just when you think Q3 you got a couple million dollars extra or close to that.

We always had some, like most companies, some legal fees but it's close to probably by $1.8 million or so of excess. So if you strip that off you are probably down I think it was $11.7 million, so you're down to the $10 million range. And I think for, again, Q4 has more another period and an extra four weeks, but on a run rate basis that should be what we would expect.

Great. Thanks so much.

Kevin Steinke, Barrington Research.

Good morning, everyone. Just taking another stab at the environmental services growth here, I know the focus has been on the impact of the energy slowdown on ES growth. But that 4% growth rate, outside of the impact of oil and gas, how much do you think you are being impacted just from what has been for quite some time just a really sluggish overall manufacturing and industrial environment?

I think that's part of it, Kevin. I mean, I think that we certainly feel like we haven't been in a very strong growth environment for manufacturing.

I'd also repeat what Joe said earlier that our people have been spending a lot of energy managing oil price changes and dealing with customers who needed handholding to transition from being paid for their used oil to going to free and then being charged for it. And we've done a good job of explaining that and hanging onto our accounts through that time, even when competition didn't always behave the same way. And so there were price differences that our customers were seeing.

That took not only the resources but it took time and attention from some of our more senior salespeople, so they were having to do extra duty to talk to well-established customers and sell them on this, then to some degree those sales resources I'm referring to now, some of the people that we've historically charged with being more focused on building and growing the industrial manufacturing customer base. So we are excited to feel like these oil price changes are largely behind us and we can get back to restoring growth in the manufacturing side of our business, which we think we can do even if the manufacturing climate overall is not very robust.

But we still historically have been able to add accounts in our environmental services business and with manufacturers and we want to resume that. Of course, with the continuing focus we've always had on the small to midsize customers I'm not talking about changing our target accounts in any way from what we've done typically.

But we think that that's another small headwind we've had, both the slow manufacturing environment and the challenges of our oil business. And as Joe said we think that our expectation is to be getting ES back fairly quickly into high single-digit growth rates.

But we can't pick which quarter that's going to materialize, particularly because we can't measure precisely what these headwinds will feel like in Q4 or Q1. But we will be trying to do that. Our own goals and objectives are based on that and expectations, and we don't see any reason to feel like that's not a reasonable goal for us to be able to hit during the coming year.

Okay, that's helpful. And you referenced earlier implementing your annual price increase in environmental services this quarter. Are you again targeting that typical mid-single-digit price increase and how do you feel about your ability to realize that?

Yes, we are targeting the same ballpark range that we historically have in that mid-single-digit range. It does vary a little bit from service type. It varies based on specific customers and how much of a discount or what price they've been on most recently but that's a good overall target.

And we don't have any belief that it's going to be harder or different for us to achieve this than in other years. You know our track record and in every year except for the Great Recession we've typically achieved in the 80% or 85% range of what our nominal or posted price increase was. And so we are expecting to get to the same outcome this year, as well.

And that, obviously, gives us a lift in terms of our revenue growth. It's important to us to be able to sustain and potentially improve our margins in ES. And so we think that this is something that we are planning on accomplishing in the coming quarter or two.

Okay good. And just on the ES margin, was quite strong in the quarter and up year over year. So what drove that higher or what's enabling you to maintain those high levels despite the lack of top-line growth?

We've continued to benefit even in Q3 from a theme that we've benefited from the last four-plus quarters which on our parts cleaning business, still a large majority of it is what we call solvent or mineral spirits-based. And to help offset, if you will, on the revenue side the lower fuel surcharges, our diesel fuel costs have continued to come down.

So those were two of the bigger positives. There were some headwinds offsetting some of that labor and benefits but some counterbalancing from improved insurance. So the two biggest things are really commodity-driven.

And Mark, I don't know how much has played a role in Q3, you can correct me if I'm wrong, but I think over the last several quarters some of the benefit we've gotten was taking the environmental service business that we acquired with FCC, which was a smaller but very meaningful part of what we acquired there, and improving pricing there. Some of the pricing there had been very weak and we've been able to improve pricing and that probably has had a positive impact on our overall ES margin. Is that fair?

Yes.

Okay, good. Well, one last question for me.

Just circling back on the oil business long-term growth strategy, I believe I remember from a couple of years ago some discussion about potentially manufacturing your own blended lubricants or maybe even making an acquisition in that area. And I think product pricing for your own lubricants tends to be a little more stable. So is that still on the drawing board or something you are thinking about long term?

Yes, this is Joe here. It's an option for us. We've been looking at this as a possible step.

So we've had this with us for the last couple of years but we haven't acted on it. And in the short term I don't see us doing it a major undertaking. We've done it in the past.

We know the steps. Acquisition could be a logical step for us but at this stage we basically want to continue to improve our margins in the oil business. And I think we can do it by improving our cost structure and efficiency at the re-refining plant.

Okay, well fair enough. Thanks for taking my questions.

Sean Hannan, Needham & Company.

Yes, thanks. Just a question here on the gallons sold.

Can you remind me what did you sell in terms of re-refined oil? I think it was about 9.6. And then what did you sell in terms of RFO in the quarter?

It was just a little over 9 in sales actually for base oil. And then on the RFO side it was about 6.3.

Great. Thanks so much, folks.

(Operator Instructions) This does conclude our Q&A session for today. Ladies and gentlemen, thank you for your participation in today's conference.

This does conclude the program. You may all disconnect. Everyone have a wonderful day.