Heritage-Crystal Clean Inc (HCCI) 2017 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Heritage-Crystal Clean, Inc. Second Quarter 2017 Earnings Conference Call. Today's call is being recorded. (Operator Instructions)

Some of the comments we will make today are forward-looking. Generally, the words aim, anticipate, believe, could, estimate, expect, intend, may, plan, project, should, will be, will continue, will likely result, would and similar expressions identify forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward-looking statements speak as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. Please refer to our SEC filings, including our annual report on Form 10-K as well as our earnings 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, amortization, 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.crystal-clean.com.

With us today from the company are the President and Chief Executive Officer, Mr. Brian Recatto; and the Chief Financial Officer, Mr. Mark DeVita.

At this time, I would like to turn the call over to Brian Recatto. Please go ahead, sir.

Thank you, and welcome, everyone, joining us this morning. Last night, we reported second quarter 2017 results. We're excited to report record earnings of $0.30 per share on a diluted basis compared to income of $0.08 in the second quarter of 2016. The second quarter results include a gain from a settlement, which Mark will discuss in his prepared remarks.

Our revenues for the second quarter increased 7.2% compared to the second quarter of 2016 to $86.4 million as we grew sales in both of our segments while also focusing on improving operating efficiencies. Mark will provide more financial details later, but I would like to talk about various aspects of our business.

There are several positive areas of our Environmental Services segment results I would like to discuss. From a revenue standpoint, we continue to progress along the trajectory of growth we outlined during our last couple of earnings conference calls. Specifically, during the second quarter, we grew revenue 5.1% compared to the second quarter of 2016. Even more promising, we grew revenue over 7% on a year-over-year basis during the last 4 weeks of the second quarter. This is a strong indication that we will achieve our stated goal of high single-digit revenue growth by the end of the year, if not sooner.

The continuing increase in our revenue growth rate is a result of improving conditions in our branches, which are heavily impacted by the energy sector, an increased focus in our industrial business from our professional sales staff and lastly, the addition of new sales resources.

As it relates to branches and geographies with a high concentration of energy sector activities, we experienced growth of approximately 2% during the second quarter. This was the first time in over a year that we have seen growth in this group of branches. We have added and we'll continue to add sales resources, such as brand sales managers, antifreeze sales and service reps, vacuum sales and service reps, ESP specialists and field services reps during the second half of the year.

Another vehicle to drive growth this year will be new service locations. While we did not add locations during the second quarter, we still plan to open between 5 to 7 sites during 2017. These new locations will be various parts of the U.S. and Canada, with an emphasis on the western half of the U.S.

Our Environmental Services operating margin in the second quarter of 2017 exceeded 30% for only the third time in company history. So far, we have been able to offset the costs associated with the addition of new sales and service resources by improving operating costs in other areas, thus offsetting any potential short-term margin headwinds from these steps.

Now I would like to talk about some important factors which improved our results in the Oil Business segment as well as offer some insight into how we see the business developing in the near term. In the Oil Business, we have trends moving in both a positive and a negative direction. From a positive standpoint, our base oil netback was up $0.25 per gallon versus the first quarter of 2017. The increase in base oil pricing has been driven by continued supply tightness for the type of light-grade Group II base oil we produce. This tightness has been created by both planned and unplanned shutdowns at virgin base oil refineries during the first half of the year. While supply tightness extended in the first part of the third quarter, we expect that tightness to ease as we move further into the second half of the year. We expect this will create downward pressure on our base oil pricing in the fourth quarter of this year.

While the second quarter provided higher base oil selling prices, our street price for used oil collection retreated for the third quarter in a row. During the second quarter, our street price declined approximately $0.06 per gallon compared to the first quarter of fiscal 2017. We continue to battle our competition for used oil collection in various geographic markets. Currently, used oil collectors who sell into the RFO market are benefiting from tightness in the fuel market, which has #6 oil trading almost on par with WTI crude. In the past, #6 oil would typically trade in the range of 85% of WTI pricing. The resulting higher price of RFO relative to crude oil allows these collectors to be more aggressive than they might otherwise have been in declining crude oil price environment.

While our used oil collection route efficiency was flat during the quarter compared to the second quarter of 2016, we continue to try to optimize the performance of these routes in the face of competitive pressure. We operated the re-refinery at a rate of 94% of our nameplate capacity during the second quarter compared to 96% during the first quarter.

As we alluded to during our first quarter earnings conference call, we incurred more downtime during the second quarter than we did during the first quarter. As we ended the third quarter, we incurred an extended shutdown during which we completed both routine maintenance and capital improvements, which we anticipate will extend the life of our catalyst and minimize downtime as a result. We expect the impact of this extended shutdown will be approximately 300,000 fewer gallons of base oil production during the third quarter compared to the second quarter.

We continue to work toward obtaining a Title V air permit for the re-refinery, which will provide us processing flexibility and operational cost savings. We are continuing to make progress and expect this permit to be issued near the end of the third quarter or beginning of the fourth quarter of fiscal 2017.

Our second quarter results provide a glimpse of what our team is capable of achieving. What excites me more than the record results we produced in the second quarter is that we have the potential to improve upon this performance in the future. As I have previously stated, it will take some time to maximize the potential of our business, but there is little doubt that we have the opportunity to execute even better in the future.

Mark will now walk us through our second quarter financial results in detail.

Thanks, Brian. For the second quarter, we recorded net income attributable to common shareholders of $6.9 million compared to income attributable to common shareholders of $1.8 million in the second quarter of 2016. As Brian mentioned earlier, for the second quarter of 2017, we recorded record diluted earnings per share of $0.30 compared to income of $0.08 per share in the second quarter of 2016. Our second quarter earnings included a net impact of $0.11 per share from a gain related to a settlement payment we received during the quarter. On a non-GAAP basis, excluding the impact of the settlement received, our adjusted earnings per share of $0.19 still would have been record earnings for a 12-week quarter. Please refer to our reconciliation of GAAP to non-GAAP supporting schedules in our press release.

In the second quarter of fiscal 2017, Oil Business revenues were up $3.2 million or 11.3% compared to the second quarter of fiscal 2016. The increase in revenue was mainly driven by higher pricing for base oil products, partially offset by lower used oil pickup charges.

During the second quarter of fiscal 2017, we sold approximately 9.8 million gallons of base oil compared to 9.6 million gallons in the second quarter of fiscal 2016. However, base oil production was down from 9.9 million gallons during the second quarter of 2016 to 9.8 million gallons during the second quarter of fiscal 2017.

We sold approximately 3.5 million gallons of RFO during the second quarter, which was down 35% or 1.8 million gallons compared to the second quarter of fiscal 2016.

In the second quarter of fiscal 2017, Environmental Services revenue increased by approximately $2.7 million or 5.1% from $52.4 million in the second quarter of fiscal 2016 to $55.1 million in the second quarter of fiscal 2017. The increase in revenue was mainly due to increased activity in our containerized waste, aqueous parts cleaning, antifreeze and vacuum services businesses, partially offset by lower activity in our solvent parts cleaning business. The majority of the increase was due to increases in sales volume in these businesses.

Turning now to income before corporate SG&A expense. Oil Business income before corporate SG&A expense increased $2.6 million in the second quarter from income of $0.4 million in the second quarter of fiscal 2016 to income of $3.1 million in the second quarter of fiscal 2017. This represents the highest operating income in the Oil Business segment since we began operating the re-refinery, and this also marks the fifth straight quarter of operating income as this segment begins to demonstrate consistent positive results. This improvement was primarily driven by the increase in base oil price during the second quarter of fiscal 2017 compared to the second quarter of fiscal 2016. This improvement was partially offset by lower production of base oil and lower pricing for our used oil collection service during the second quarter of fiscal 2017 compared to the year-earlier quarter.

Profit before corporate SG&A expense in the Environmental Services segment was a record $16.7 million. Our second quarter operating margin percentage of 30.3% was the second highest ever for the company and the highest ever for a 12-week quarter. The record performance was driven by higher revenues as we continue to better leverage our fixed costs combined with lower costs in areas such as waste disposal and workers' compensation compared to the second quarter of fiscal 2016.

Our overall corporate SG&A expense as a percentage of revenue was 13.2%, which was an improvement from the first quarter of 2017 and better than the 15.3% of revenue figure from the year-ago quarter. The improvement in corporate SG&A expense was mainly due to lower legal fees, partially offset by higher incentive compensation. We still have opportunities to improve our corporate SG&A expense, and we expect to continue to drive this expense lower as a percentage of revenue over the coming year.

During the second quarter, we recognized other income, net of other expense items, of $3 million. The largest item in this category is a $3.6 million gain recognized as a result of the settlement agreement with the sellers of FCC Environmental related to items which were previously in arbitration.

Our second quarter EBITDA of $15.6 million represents the third straight quarter in which the company has produced record EBITDA.

Turning to the balance sheet. During the second quarter, we generated $16.2 million of cash from operations compared to $8.2 million in the year ago quarter. The increase in cash for the second quarter includes the second installment of a -- of $4.3 million from the settlement referred to earlier. At the end of the quarter, we had $28.6 million of total debt and $25.2 million of cash on hand. Our robust cash flow generation during the quarter further enhanced our balance sheet, providing us the opportunity to pursue acquisitions as well as putting capital to work to help drive revenue growth and improve operational efficiency. We appreciate your continuing interest in Heritage-Crystal Clean.

Now I will turn control of the call over to our operator to advise you of the procedure to submit your questions.

(Operator Instructions) Our first question comes from Sean Hannan of Needham & Company.

Yes. First thing I want to see if I could start off with is on the Oil Business side. So it was interesting to see one of your competitors take an effort to announce to their used oil suppliers they were increasing some of their fees, and yet, I think you guys had indicated there's some other downward pressures on that used oil. Can you help to maybe give us a perspective of whether you think the increased efforts at your competitor, if that's taking hold a little bit in the industry? Or perhaps any influence on your ability to also maintain current charges or even increase for some of those used oil generators? Any thoughts around that would be helpful.

Sean, I'll take an early crack at it, and maybe Mark can add a comment or two. I'm routinely on the phone with our branch leadership, and we're not seeing any current evidence of street price increases currently. I mean, obviously, we're working hard as well to try to stabilize our street pricing. And then, over the past -- I'd say over the past 30 days, we've seen it really stabilize, and we feel pretty good about that, and we're pushing our people hard to continue to push the price increases. But we're not seeing any evidence on the street. And as you well know, we compete with a lot of regional collectors as well, and we're certainly not seeing them reduce street pricing. Understand that the dynamics of #6 are a lot different. Used motor oil, the #6 are a lot different than they have been historically. Typically, there's a 50% spread between the 2. Right now it's very, very tight. You've seen a -- we've seen a pretty large reduction in fuel oil in the Gulf Coast market, which is placing a premium on RFO. Those guys are benefiting from the tight spread, which is making the overall conditions relatively competitive out there. But we're optimistic that we're seeing stabilization, and we're going to drive our people hard to continue to raise prices.

I'd like to underline Brian's optimism. We all know that Clean Harbors or the Safety-Kleen division is a very big ship, and there's no reason to doubt the intent of the management there. And we're optimistic they'll get that done and that, as time goes on, because it's only been a week or 2, that we will start to see some of that because they are the market leader. There's no doubt. And as much as regional collectors and local guys will be a factor, you definitely don't want to discount the effect it'll have on the market. So we're optimistic that we'll start to see at least anecdotal signs here in the coming days and weeks.

And Sean, given our expectation that base oil pricing will begin to -- the supply-demand balance will improve in the favor of more supplies. We come out of these refinery -- unexpected refinery turnarounds and most of -- a couple of them happened in July that we weren't expecting. So it's still tight out there, but we do expect that to loosen up. So we hope the discipline continues in the business. We need to raise prices.

That's great feedback. And then to follow on with those comments, I think we saw Chevron posted pricing had a little bit of an increase here, announced or kind of coming to market here this morning. So it was interesting to observe that. And then, Brian, following on your comments that, hey, look, we would expect pricing to start to have a little bit of pressure as we get into the fourth quarter as some of the constraints in production really start to ease, there's also an aspect of seasonality. I think that is pretty typical every year, getting into that fourth quarter as well. So as we step back and we think about these variables, what is your gut or your sense today as we transition into 4Q? Do you feel that, that seasonal downtick would be very similar to what we've observed in some prior years? Or is there perhaps some supportive fundamentals that does not allow that to be as drastic, perhaps, these price declines that may occur might be a little bit more slight? Any perspective around that?

I think, Sean, our perspective is a theme that you and I have spoken about and the company in general has alluded to that while supply tightness, the kind of which that Brian described earlier certainly was the catalyst to get pricing and keep it where it's been at for the last many months or a good chunk of this year, that there is a feeling that part of the increase -- and whether that was a catalyst or not, it doesn't really matter, but part of what's supporting where the prices are now is somewhat of a return hopefully, and again, it'd only be a small bit of it. But somewhat of a return to what we would expect is more normal lube-crude spread. So when you think about the virgin base oil producers, I don't have insight to their detailed financials on their base oil business specifically. But I think it's logical to believe that they're starting to actually enjoy some profitability in businesses that quite honestly for the last year or 2 have been severely underperforming, and they -- we're price takers in the re-refining side of the business. But I think that plays into what we can expect going forward. So while we expected -- and this is before the Chevron notice that you said came out this morning, I hadn't seen it yet, but we weren't forecasting that we would see a complete regression in pricing back to where -- assuming a constant commodity environment for crude, we weren't assuming a complete regression back to where they were before the supply tightness. And that really underlines the comment that I'm making that there is a portion of this. I guess the real question is, what is that portion. And we're not making open prediction on that. But a portion of the support for pricing where it is now relative to where it had been the previous year or so that is in restoration of that lube-crude spread.

That's fantastic feedback. All right. And then, last question here. Jump back in the queue. On the Environmental Services side, great to see you guys are starting to expand some of the growth there in the business again. When you think about the margins accomplished in that business in the quarter as well as I think what was alluded to for what might be some cost pressures in the back end of the year, at least related to some sales personnel or new locations, can you help us kind of put that into perspective of how we should think about the margin performance in the back end of this year? And what you think may transpire versus your goals for return to upper single-digit growth?

Yes, no problem. So we are seeing -- when you think of what we've been doing, and we mentioned that we didn't actually add any branches during the quarter, but one thing we've done throughout the first half is adding headcount, and Brian went through some of the actual specific positions that we're adding. And what we've added -- without getting too granular, what we've added in the first half of the year, we'll probably add around the same or a little less than we add -- in the second half of the year, we'll probably add around the same headcount, maybe a little less. And so we're already seeing some additional cost and labor cost. It's probably, on a margin basis, was a headwind of about 0.3% on a year-over-year basis, additional labor, and some of that obviously relates to the positions that we're adding. But being able to weather that storm, we're further up the learning curve and the growth curve as far as those positions. A lot of those positions get to breakeven, some of them as quickly as a year, a lot of them in 1.5 year range. So we've moved ourselves while being able to -- not say hide the impact, but mute the impact of those costs for the first half of this year. Yes, we're going to see additional costs, but they're further along. And really, while I wouldn't expect to be at the 30% range for Q3 and Q4, I would not expect much more than probably what you were forecasting probably in the high 28% range that's probably realistic. Overall, when we get through this cycle, we think outside of any commodity impact change. If you assume a flat commodity environment, you're looking at 200 basis points at the most from this based on our current plan. Should we decide to accelerate things more, one of the things we're looking at, we're obviously generating a lot of cash as we look to maybe spend some of that money and maybe do a faster rollout of any of those resources we've alluded to than what we've explained, that might change things. But where we sit today, I think that's the outlook.

And Sean, I absolutely agree with Mark. We are leaning toward accelerating our organic growth initiatives. We feel pretty good about what we've accomplished year-to-date. On the flip side of that, were going to work the cost structure hard, and we've identified some opportunities on the logistics front. A lot of that will not happen until 2018. So I think Mark is correct in the fact that we will see some margin pressure because of the additions and the fact that we're going to speed this up even more. But we hope in '18, we'll be able to get that back. We're confident that we can with the cost reduction opportunities that we've identified on the logistics front.

Our next question comes from Luke Junk of Baird.

My first question is on growth in the Environmental Services business. So as you alluded to, certainly things are developing like you'd expected with growth accelerating into the mid-single digits this quarter, 7% tracking exiting the quarter. And what I was wondering is, if we disaggregate the improvements from here into a high single-digit type target, if you look at core customer improvements, I'm thinking where your auto customers, including the sales initiatives that you have in -- for those folks, gains with newer industrial customers? And then the moderating energy headwinds. As we look at all 3 of those factors, is there really one thing that's driving the growth? Or is that you would rank order out in terms of the priority? Or is somewhat equal contributions from all 3 of those things?

I'll let Brian chime in here. But I really think it's -- and we alluded to this, Luke, when you and I and Dave had spoken. And just in general with the investing public that it really is all these things at once. It's all hands on deck. We don't see it as -- and the numbers don't tell us that it's any one initiative that we're doing is overwhelming the others or is that much more beneficial than the other. And that's why we feel we need to push things on all these fronts. But Brian, if you want to?

No, I absolutely agree. We've added, as Mark talked about, 15 sales professionals to our staff. It's across the board. I alluded to it in my prepared remarks. I mean it's all of our service lines. So I think we're getting equal contribution. We have been extremely aggressive with our industrial customer base. That's the customer base that we're focusing a lot of our energy on because that's where we see more of an opportunity to really penetrate with multiple service lines, more so than some of these smaller accounts. So I'd say, heavier emphasis on the industrial business, leading with our brand sales managers that are really pursuing that type of work.

Great. And then switching gears over back to the Oil Business, I mean, obviously, margins, very strong this quarter, just almost at 10% level. And Mark, you alluded to in your comments the fact that we are seeing more consistent profitability in that business and certainly you guys are taking steps to promote the, say, structural profitability of that business. But at the same time, certainly, there are some factors that helped in terms of the market pricing this quarter. And then just wondering, pivoting off of this almost 10% figure this quarter, what -- maybe a more natural level of margin in the businesses, given the current market environment, the [good guys], if you will, that you're working on relative to internal efficiencies and then bridging the gap versus your outlook for base oil maybe to -- to come in a little bit in the second half of the year, the fourth quarter specifically.

Yes, I think timing is on our side. And again, we don't have enough information to get into detail here with investors today. But we're seeing some glimpses of sustainable operational improvement on the operating side of the re-refinery, in the production side. And when you think about some of the both on a cost reduction and productivity side improvements that we have, at least, some clarity to on that part of the business. And what we might think to absorb in -- or give back in base oil pricing, I think on a per gallon basis and thus as far as impact on the margin, they could possibly equally offset each other, and it really comes down to then timing of when -- let's assume we're right on the magnitude of both the operating cost improvements and the price pressures, it comes down to the timing of when those will happen. So I would tell you if one happens sooner than the other, there could be additional upside or downside to where we're at. But outside of the downtime we had to absorb at the beginning of this quarter, Q3, that Brian alluded to, to get some of these or to set the stage for some of these improvements, we're probably going to be at equilibrium, which would tell you, again, I hadn't really actually been aware that the Chevron news. If we get stability in base oil, we could actually go up from here in margin percentage. Obviously, we have to execute. And it is early as far as us some of those operational -- potential operational gains. But that's our outlook.

Yes, agree. And obviously, in my prepared remarks, we talked about the production shortfall in Q3. It's not substantial, but it is 300,000 gallons of production. As a result of the capital improvements we made -- and we did some routine maintenance as well. But as Mark alluded to, we're very excited about the changes that we made to the re-refinery. Our guys have done a hell of a job trying to make the plan more ratable and predictable. We want to eliminate the unscheduled downtime that unfortunately has plagued the site since we opened it. And obviously, it's a fairly new facility. So we're working through those kinks. But the 2 changes that we made are meaningful. They're going to allow us to eliminate some catalyst changes. We certainly won't have the frequency of catalyst changes that we've had in the past, and we also put in some severe service ball valves that will allow us to switch reactors without shutting the unit down. All of those things will increase our uptime, but we're still bullish on Q3 pricing. If that can hold up into Q4, we feel really good about where we are in oil. And our goal is no different than what you stated. We want to see double-digit EBITDA performance or at least the way we represent it, double-digit performance in that service line. That's our goal.

Our next question comes from Ryan Merkel of William Blair.

So first question for me on the Environmental Services sales growth rate of 5% this quarter. How much price was embedded in that growth rate?

That's a good question. Almost all of it, I think, I had in my prepared remarks, was volume related. There was some price in, if I get somewhat granular, in our vacuum services business and in the parts cleaning business on the aqueous side, but overall, it was almost all volume related.

And my memory is that you usually get price most years. Is there a reason that you're not getting price this year?

As we look to get back on the growth track, we've been off of it unfortunately in 2016, and part of it was due to economic or industrial factors related to the energy sector. I talked about that at ad nauseam. We've been, in certain cases, and it's -- a lot of it's focused on new opportunities. One is to instill more of a winning mentality -- or I wouldn't say instill, but reignite what had really helped this company grow for most of its history in the Environmental Services business outside of the Great Recession years. And so a lot of it is helping to restore that winning mentality and sometimes that's being aggressive in certain situations on price more than we have in the past.

Yes, I agree. It's certainly in pursuit of new business, not necessarily with old business.

Got it, understood. Okay. And then I think I might have missed it. Did you say how much the energy end market was up year-over-year this quarter in the Environmental Services segment?

Yes, it's up 2% quarter-over-quarter. So not significant. And we're seeing really a stabilization of rig counts in the basins that we operate in. Understand that most of the rig count increases happen in one basin, which would be the Permian Basin in West Texas. So we've got 1 branch, and we're looking to open another hub there. But at the end of the day, we think that's going to be relatively flat moving forward because the rig count has stabilized. I don't expect to see the rig count go up too much more for the balance of the year. But we have seen a little bit of a lift in the oilfield branches that are in the Eagle Ford basin. Certainly, in the Oklahoma area where they've added rigs, we've actually seen an improvement in the rig count in the Haynesville Shale, which is a gas basin. Not really seeing anything from the Gulf of Mexico. But mostly the land-based plays and those marketplaces have given us a little bit of lift. It's only been 2% year-over-year.

But as a refresher, Ryan, the reason we're so excited here is this was low double-digit negative on a year-over-year basis in Q1. So this is quite a turnaround for us.

Yes, I mean, that's where I was going with the question, given it was down double digits. I think a year ago, to be up only 2%, I guess, I would've expected a little bit more and I guess I'm still not clear why the growth rate isn't better than 2%?

Well, understanding the way the oilfield works, it take some time for these maintenance shops that are supporting the drilling rigs to actually begin producing waste and ship it off-site. So you're going to have a 60- to 90-day lag before we begin to see some additional orders. And as we talk to the field and the branches, we are hearing more positives about activity in those land-based shale plays. So we're optimistic that, that will continue to improve.

Okay. Lastly for me, a longer-term question. I recall that the goal for the Oil Business was 20% EBIT margin. It seems in today's environment, that may be out of reach? And I'm curious, long term, do you think that's still achievable? And more importantly, what needs to happen in order to get back to the 20% target?

I don't -- I think you're right, Ryan. In today's environment -- if I understand your assumption there. Yes, this isn't a 20% margin business. And when we made those forecasts, we always made them, and we probably did it maybe a couple times within the last 5 years. It was always assuming [seg] market conditions that were in place at the time. And while we are optimistic about some of the improvements both on a cost side and a productivity side that we're going to hopefully be seeing here in the coming quarters, even if we stayed flat -- because one of the earlier questions was, hey, if you basically see a little pullback on base oil, like you assume, where are you going to be, and I said it might be, depending on timing, around the same. Even in this current environment, if it stayed the same, the pricing, if we're doing better on operating the cost side, then we're going to be a little bit better. But to get back up to those ranges, you need to have those conditions that were in place. Again, it basically comes down to the lube-crude spread. It was more than double what it is today back in those times. So that's what you need to see.

Yes, I agree. Right.

So the top end isn't 10% or 9.9% is my point. And in today's environment, just was steady. But it's not 20% either.

Our next question comes from Michael Hoffman of Stifel.

This is Brian Butler in for Michael. Just on the Oil Business, how much UMO was collected in the second quarter? And how much was run through the facility?

We collected...

14 million.

Almost 15 million, and we ran about almost all that other than 0.5 million. So about 14.5 million.

Okay. And then it seems like some of this -- the downtime that you saw in the third quarter, was that pushed from the second quarter? Because utilization was a little bit better than expected on our end -- or on my end. And so how to think about utilization in third quarter and then into fourth quarter? Is it going to be kind of in that mid-90s or mid- to low 90s for third quarter and then gets much better in the fourth quarter?

Yes. Our hope is that it's going to be in the low 90s in Q3. Yes, low 90s in Q3, and we're expecting it to get back up to the high mid -- mid 90s in Q4, if the changes that we made continue to work like we think they will. We're very optimistic on the capital upgrades that we made during this recent turnaround. And we do expect to begin to see some real incremental savings on the 45 million gallons that we're processing in a year, upwards of $0.07 to $0.08 a gallon, we think we can achieve in cost savings at the plant.

Okay. So utilization will probably come down in the third quarter is what I'm hearing and then recover because of this turnaround?

Correct. We're not forecasting any additional downtime in Q3 outside of what we've already talked about in our prepared remarks.

Yes, so we feel good. I mean the thing is about Q3 and the headwind to production, it's already occurred. There's less -- there's always risk every day at a re-refinery, but there's a lot more clarity than if this -- we hadn't gone through it yet. Because it's done, we're back online running.

Okay. And then on the charge for oil price, you said you're seeing some stabilization. So is that down $0.06 that you saw in the second quarter that's kind of where it is right now in the early third quarter here?

Yes, that's what we're seeing.

Okay. So essentially, it's flat right now from second quarter to third quarter is the right way to think about it?

Yes, that's correct. Flat from second to third.

Yes, it remains to be seen. But one issue you heard us talk about, Brian, earlier was the potential impact of the action as a market leader. So if -- depending on commodity price, if that can become a tailwind, that would be great.

Okay. And then on the Environmental Services piece, can you remind us how many branches you've opened or new sites you've opened to date? And kind of how to think about that 5 to 7 target in the second half? Is that really now being more weighted to the back half?

Yes, it's more weighted to the back half, driven by the fact that you have to go out and source the locations. We've opened 2 to date in 2017 and expect to get at least 3 to 4 more open by the end of the year with a heavy concentration on the western half of the U.S., as we've stated.

Okay. But thinking of those actually coming into is really more of a fourth quarter event, unless -- I guess, what I'm trying to ask is, are you really close to opening something soon or is it...?

Yes, yes. We've got a couple that we're getting close on. One is a satellite branch in a key marketplace. So yes, we're going to get that open in Q3, and then we'll get some full branches open in Q4.

All right. And then a housekeeping one. What was CapEx spending in the quarter?

$3 million.

(Operator Instructions) Our next question comes from Kevin Steinke of Barrington Research.

So you've talked about the last couple of quarters that you want to put initiatives in place to drive down logistics and waste disposal costs in the Environmental Services business. Although I think you said today that that's probably not going to have an impact until 2018. I mean, at the same time, you noted today that lower waste disposal costs were a driver of the margin improvement this quarter. So just kind of wondering what was going on there with the disposal cost.

Part of that's just working with our providers, what we've experienced so far working with our providers on pricing. But we have additional opportunities on top of that, that are more internally driven is what Brian was alluded to and the timing that he mentioned earlier that we probably won't be kind of printing those improvements until next year.

Yes, that's a little bit of a cultural shift for how we run our operations. So we were looking to reduce the trips from our hub locations out to our branches and back from our branches to our hubs. And that takes some time to get our employees trained and understanding how the mechanics of that are going to work because you're maximizing payload on a tractor trailer rig going from a payload of 40,000 pounds to 80,000 pounds, and it involves double stacking. So it's not that easy. It's something that will get implemented over the back half of this year and really begin to see some effect from in 2018.

Okay, great. And then, you talked about a number of your services helping to drive the improved growth in Environmental Services this quarter. Although, I think you also noted a slight pullback in parts cleaning. Is that correct? And if so what's going on there?

There's no new news in this quarter. And to be specific, we talked about the one area where we weren't seeing growth was solvent parts cleaning. And that's been a business, to be quite honest, Kevin, for a number of years that is a slight flat to slightly down quarter-to-quarter type performer. Our aqueous parts cleaning business has been for a number of years growing in the 20% plus range. So overall, parts cleaning would still grow, but you'd have some trade-off between the 2 types of offer.

Okay. So is that just the expectation going forward, is that the aqueous continues to kind of take share from the solvent based, and that's how you drive the overall growth in parts cleaning?

Well, let me be clear. It's not necessarily cannibalization. It takes share from the market. In general, yes. We're not in some conversion initiative.

Okay, okay. So would you want to reignite the growth in solvent based? Or do you see an opportunity to do that?

Part of it is what the market preference is, and it's moving more towards aqueous, at least for now. And again there's technologies being developed. So this obviously could change in the future. But this is a business that while a certain percentage of the applications based on what's available now probably aren't eligible or good fit for aqueous parts cleaning. Within what is a good fit, there is opportunity for that to continue to grow, and there is a market or user preference in those applications in many ways -- or for many customers to move towards aqueous. So if they're not outwardly looking for it, they're definitely receptive because depending on what your objectives are, there are advantages or benefits moving that way from a solvent parts cleaning machine to an aqueous parts cleaning machine.

Okay, that's helpful. Just one last one here. So you mentioned that you expect to continue to drive corporate SG&A costs lower over the coming year. Last quarter you talked about some initiatives you're putting in place to accomplish that. So just any update on the progress of those initiatives? And I believe last quarter you said you could start to see some of the benefits of that as early as the fourth quarter here. So just overall progress on the initiatives and maybe timing of the benefits as we look forward?

We still have work to do in that area. We could maybe see it in Q4, at least at the end of Q4. That might be a little early. It might not be till 2018. But some of the moves, we've certainly had several strategy sessions, and some of those moves will definitely be executed during the second half of this year. But how much of a benefit we'll see during the year and in Q4 specifically, I don't think we want to commit to at this point.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.