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Heritage-Crystal Clean, Inc (NASDAQ: HCCI)

Q3 2021 Earnings Call

Oct 21, 2021, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Heritage-Crystal Clean Inc. Third Quarter 2021 Earnings Conference Call. [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, 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.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.

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Brian Recatto -- President & Chief Executive Officer

Thank you, Julie. Good morning everyone, and thank you for joining us today. On behalf of the entire Crystal Clean team, I will let our investors know how pleased we are with a record-setting third quarter results we released last night. We produced several records during the third quarter, including total revenue, net income, earnings per share, and EBITDA. In several cases, our third quarter results were significantly higher than our previous record performance. Mark will provide additional detail.

The total third quarter revenue exceeded expectations at $123.2 million, which produced record EBITDA of $30.6 million. Now, I would like to discuss the results in both of our reporting segments.

As I did last quarter, I'll start with our Oil Business segment. During the third quarter of fiscal 2021, Oil Business revenues more than doubled compared to the third quarter of fiscal 2020 to $50.8 million. The increase in revenue was mainly due to an increase in our base oil netback by $2.17 [Phonetic] per gallon compared to the third quarter of 2020 and by $0.63 per gallon compared to the second quarter of 2021. Additionally, our base oil sales volume of 11.2 million gallons during the quarter was 12.9% higher than the volume of base oil sold during the third quarter of 2020 and further contributed to our record revenue performance.

Oil Business segment operating margin increased sharply to a record 42.8% in the third quarter of 2021 compared to 3.4% in the third quarter of fiscal 2020. The higher operating margin compared to the third quarter of 2020 was mainly due to an increase in the spread between the netback on our base oil sales and the price paid or charged to our customers for the removal of their used oil.

Our rerefinery team continued to execute well during the third quarter. And it's been more than two years since we've had significant unplanned downtime in our rig refinery. We produced a 12-week quarterly record of 12.5 million gallons of base oil, which was approximately 10% more than the third quarter of 2020. We're very pleased with the consistency our rerefining operation has demonstrated over the past two years.

Let's now move on to the Environmental Services segment. In the Environmental Services segment, revenue for the third quarter of 2021 was $72.3 million compared to $62.4 million for the same quarter of 2020, an increase of $9.9 million or 15.9%. The increase in revenue was mainly due to our continuing recovery from the negative impacts of the COVID-19 pandemic. We experienced volume increases across all service lines in the segment when compared to the third quarter of 2020. While it was great to see our improvement relative to the pandemic impacted results from 2020, we were even more pleased to see that our revenue for the third quarter exceeded revenue from the third quarter of 2019 by 4.9% in this segment.

Environmental Services profit before corporate, selling, general and administrative expenses, was $17.3 million or 23.9% of revenue compared to 14.6% to 14.6% or 23.4% of revenue in the year ago quarter. The improvement in operating margin would have been greater if not for inflationary headwinds caused in part by supply chain challenges, which are affecting many industries today. Before we look ahead, I want to provide an update relative to our M&A activities. I'm happy to report we closed on three acquisitions in the past two months. One transaction closed at the end of the third quarter and the other two transactions closed at the beginning of our fourth quarter. These transactions are providing several benefits to us. First, two of the businesses operate in the Western US, which helps build our density in these important growth markets. These acquisitions have also provided additional wastewater treatment and non-hazardous containerized waste processing capabilities as well as expanding our internal technical field services offering. We can now internalize more projects such as lab tech field work, which should increase our win rate and profitability for these projects. Most importantly, we are very excited about the new additions to the Crystal Clean family as a result of these acquisitions. Now, I would look forward and discuss our outlook for the future. In our Environmental Services segment, our growth compared to 2019 is an indication that we are working hard to put the impacts of the COVID-19 pandemic behind us. We achieved the growth compared to 2019, even though our manpower lost time hours were up approximately 27% during the third quarter compared to the third quarter of 2020. While there is still risks relative to the Delta variant of COVID-19, we are confident that we can operate effectively and continue to drive revenue growth in the current environment. During the fourth quarter, we expect to continue to grow our Environmental Services segment revenue at a mid-single-digit rate compared to the fourth quarter of 2019. From an operating margin percentage standpoint, we have been facing and expect to continue to face supply chain issues and inflationary pressure for containers, fuel, third-party logistics, waste disposal, and other items. We are working hard to counteract the negative impacts of these items by internalizing more non-hazardous waste processing and by implementing our annual price increase at the beginning of the fourth quarter. We have early indications that the rate of customer acceptance of the price increase is higher than what we might expect in a typical year. Despite the cost pressures we are experiencing, we believe our price increase, along with increased internalization of customer waste streams, will allow us to improve operating margin in Q4 compared to our Q3 results. From an Oil Business segment perspective, we're beginning to see more balanced supply and demand with mid-to-light grade Group II base oils as we move further into our fourth quarter. While our current base oil netbacks are slightly higher than our average during the third quarter, we expect seasonally reduced demand and higher feedstock prices as offsetting factors, which should keep our product pricing stable through year-end. As we look forward to 2022, there are several base oil refinery outages planned for the fourth quarter of this year and the first quarter of 2022. This will reduce available supply and should provide support for base oil prices in early next year. On the used oil feedstock side of the business, we saw our cost increase with a bullish move upward in crude oil pricing during the third quarter. With crude prices still on the rise, we continue to feel upward pressure on used oil feedstock costs. However, the pressures moderated more recently, and we do not expect significant additional upward pressure on used oil pricing during the remainder of the year. As planned, we completed and extended rerefinery turnaround during the beginning of the fourth quarter. The turnaround generally went as planned, and we have another shorter turnaround plan for the next month. The two turnarounds will somewhat limit our base oil production during the fourth quarter, which we expect will be approximately 13.3 million gallons. For the year, we are still on pace to produce over 49 million gallons of base oil. From a profitability perspective, we expect fourth quarter operating margin to be in the mid-to-high 20% range as continued high base oil pricing is somewhat offset by less production volume caused by our planned downtime, as well as constraints on the availability of hydrogen. In addition, it appears that higher natural gas prices will increase operating costs for the remainder of the year and into the first quarter of 2022. The outlook I just provided assumes that general economy will continue to recover from the COVID-19 pandemic, and the supply chain disruptions will gradually subside. Should this not be the case, this could negatively impact our outlook. Before I turn things over to Mark, I want to let everyone know, we recently took a significant step forward in our ESG initiative with the release of our first sustainability report. You can find a copy of the report on our website. We believe we have a very compelling ESG story to tell and the issuance of this sustainability report is a first step in our continual process to communicate the many ways in which we are striving to protect the Earth's resources by helping the business world run cleaner and positively impact the people and communities we interact with on a regular basis. With that, Mark will take us through our third quarter financial results.

Mark DeVita -- Chief Financial Officer

Thank you, Brian. Good morning, everyone. It's great to be with you today. In the third quarter of 2021, we generated $123.2 million of revenue compared to $87.1 million in the same quarter of 2020, an increase of $36 million or 41.4%. The increase in revenue was mainly driven by higher base oil pricing and continued growth in recovery from the impacts of COVID-19 pandemic in our Environmental Services segment businesses, which negatively impacted 2020 revenues.

Net income was a record $18.5 million or $0.79 per diluted share for the third quarter of 2021. This compares to net income of $4 million or $0.17 per diluted share in the year earlier quarter. This past quarter was not only the second quarter in a row in which we are record high net income, but net income for the quarter was 22.5% higher than the second quarter of this year, which represented our previous quarterly record.

Let's get into the details of our Oil Business segment results. Oil Business segment revenues for the third quarter of fiscal 2021 were a quarterly record $50.8 million, an increase of $26.1 million or 105.9% compared to the third quarter of fiscal 2020 and an increase of 41.9% compared to the third quarter of fiscal 2019. Brian mentioned the increase in netback drove higher revenue and gave you the change in netback on a year-over-year and sequential basis. But from a pre-pandemic standpoint, our netback increased by $1.56 per gallon compared to the third quarter of 2019.

From a profitability standpoint, Oil Business segment profit before corporate SG&A expense increased $20.9 million to a record 42.8% in the third quarter of 2021 compared to 3.4% in the third quarter of fiscal 2020. The increase in operating margin compared to the third quarter of 2020 was mainly due to an increase in the spread between the netback on our base oil sales and the price paid or charged to our customers for the removal of their used oil. This spread was up $1.73 per gallon compared to the third quarter of 2020 and up by $0.50 per gallon compared to the second quarter of 2021. Compared to the third quarter of 2019, profit before corporate SG&A expense was higher by $18 million, driven by a spread increase of $1.43 per gallon

From a used oil collection standpoint, on a weighted average basis, during the third quarter, we experienced a net change of $0.44 per gallon compared to the third quarter of 2020 as we move from a charge for oil position in 2020 to pay for oil position this year. Compared to the second quarter of 2021, our pay for oil increased by $0.13 per gallon.

From a used oil collection standpoint, despite an 18% increase in the number of oil sales and service reps, we were able to keep our used oil collection route efficiency essentially flat during the third quarter compared to the prior year quarter. As you might expect, the cost of third-party used oil feedstock also increased during the quarter. However, the cost of this feedstock increased by only $0.11 per gallon from the second quarter to the third quarter. Part of the reason for this modest cost increase was a decline in demand for this material. During the third quarter, we lowered our third-party feedstock purchases by 35% compared to the second quarter.

Now, let's discuss the Environmental Services segment. The Environmental Services segment reported revenue of $72.3 million an increase of $9.9 million or 15.9% compared to the year ago quarter. The 15.9% increase in revenue was mainly due to the lessening impacts of the COVID-19 pandemic on our business during the third quarter of 2021 compared to the third quarter of 2020. We saw volume increases in all of our lines of business compared to the third quarter of 2020. As Brian mentioned, compared to the results for the third quarter of 2019, third quarter 2021 revenues were also higher. This growth was led by our containerized waste business with our wastewater vacuum, field services and antifreeze businesses also showing growth. Environmental Services profit before corporate SG&A expense increased $2.6 million or 18% in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020. Operating margin for the third quarter of 2021 was 23.9% compared to 23.4% in the third quarter of 2020 and 25.7% during the third quarter of 2019. The increase in operating margin from last year was mainly driven by higher revenues, due to the waning negative impacts of the COVID-19 pandemic, which produced improved leveraging of fixed costs during the third quarter of fiscal 2021, partially offset by increasing costs for items such as containers and disposal services. The increase in operating margin compared to -- excuse me, the decrease in operating margin compared to 2019 was primarily due to increase in cost in areas I just mentioned. Total company operating cost increased $12.4 million or 18.5% during the third quarter of 2021 compared to the third quarter of fiscal 2020, which was mainly due to higher labor costs, health and welfare costs, transportation-related expenses, and higher used oil feedstock costs as a result of more business activity due to the lessening impacts of the COVID-19 pandemic. Our overall corporate SG&A expense of $14.4 million represents an increase of $3.9 million or 41.4% compared to the year ago quarter, driven by an increase in our bonus reserve as well as the absence of temporary wage reduction and the lack of suspension of our 401(k) match, both of which occurred during the third quarter of 2020. EBITDA of $30.6 million was record and up $19.6 million compared to the year ago quarter. This was the fourth consecutive quarter of record EBITDA, and third quarter EBITDA was 16.8% higher than the previous record from the second quarter of 2021. The company's effective income tax rate for the third quarter of fiscal 2021 was 25.1% compared to 22.7% in the third quarter of fiscal 2020. The rate increase is principally attributable to consistent levels of profitability as compared to the same quarter in the previous year. Looking at the balance sheet, we had an increase of $8 million in cash during the third quarter, which resulted in a balance of $75.3 million of cash on hand at the end of the quarter despite an $11.4 million cash outlay for the acquisition Brian mentioned earlier. Our primary sources of liquidity for the quarter are cash flows from operations and funds available to borrow under our revolving bank credit facility. We generated $24.2 million in cash flow from operations during the quarter, which represents a 384% increase compared to the third quarter of 2020. We also generated free cash flow of $20.7 million during the third quarter of 2021 compared to $1.6 million during the third quarter of 2020. As Brian mentioned earlier, we recently closed on multiple acquisitions. We expect these businesses will contribute approximately $25 million to $30 million in annual revenue. Even as we work to integrate the newly acquired businesses, we continue to identify other potential acquisition targets, which we believe can help us improve our business and achieve our mission. To summarize, we are working hard to combat the negative impacts inflation is having on our business in order to restore the margins in our Environmental Services segment, and we are thrilled with the execution in the Oil Business segment and our ability to continue to take advantage of the favorable market conditions. This concludes our prepared remarks. I will now turn the call over to Julie to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. Your first question comes from Michael Hoffman with Stifel.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Thank you very much. Brian and Mark, you are having a good day. [Speech Overlap]

Brian Recatto -- President & Chief Executive Officer

Hi, Michael. How are you?

Michael Hoffman -- Stifel Nicolaus -- Analyst

Good, good. Finding frogs here, as I say in my part of the world. Used oil, just to be clear, when we had the second quarter call, you gave us a maintenance schedule of, sort of, 3.5 days in 3Q and eight to 10 days in fourth. Because of the strong performance, did you push all, sort of, 11 to 14 days into 4Q?

Brian Recatto -- President & Chief Executive Officer

No. We didn't change anything, Michael. We may have miscommunicated on Q2, but we are right on plan relative to our turnaround schedule.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay.

Brian Recatto -- President & Chief Executive Officer

We just got a pegging toward the end of this year, which we always do in Q4. So nothing has changed.

Mark DeVita -- Chief Financial Officer

But we took downtime in three.

Brian Recatto -- President & Chief Executive Officer

Yes.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay. So you had a really good quarter and then, you took more downtime? That's the important [Indecipherable] comment.

Brian Recatto -- President & Chief Executive Officer

Yeah. We still produced a record production. And it's not like we cheated and pushed it all into beginning of Q4.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay. This next question is a little philosophical. But can you quantify in your mind how IMO has actually impacted the shifting between the charge for oil scenario and a pay for oil? My sense is, you are paying less than you might have been if this was 2019 and oil prices were where they were because of IMO?

Brian Recatto -- President & Chief Executive Officer

Yes. No doubt. If I remember correctly, we talked a little bit about this on the Q2 call. Absolutely, we are seeing a lower price than we would normally pay for used motor oil out in the marketplace. I actually look at the math and it's $0.10 to $0.15 lower than we would normally pay for used motor oil. There is ample supply, Michael, still out in the marketplace. I'm a bit worried with crude pricing shooting up like it is and natural gas pricing going up that we may see more demand in the winter months for converting these motor oil to some type of waste fuel. But we are not seeing it now.

We have still got ample supply, and we are getting it at a pretty good price. So I mean, we have talked a lot about the shift in our Oil segment, driven by the fact that we think IMO 2020 has helped the business fundamentally and will help us over the long haul. So structurally, we are seeing the changes. And on the flip side of that, we were out at the base oil conference last week and lots of activity around ESG and the desire to purchase our base oil because of the fact that we have recycled the hydrocarbon molecules. So we feel really good about demand because of the fact that people are focused more on sustainability. So I think, harking back to what we talked about on the Q2 call, I would love to see us not have to discount our base oil, and I think we are headed that way.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Well, that would be interesting. So just so I understood some of the comments in the script. You do expect some normal seasonality and supply demand starting to be at level, but between the strength in the 4Q, the normal seasonality, the comment was and am I right that we should be flat sequentially on the spread. So it neither expands or compresses in 4Q and then potentially starts to compress again in 1Q?

Brian Recatto -- President & Chief Executive Officer

Yes. We have seen a little bit of an uptick in spread. We are not expecting much more, and that's driven by the fact that we're hitting the seasonal period where demand is lower. But because of the virgin refineries are paying more for feedstock, we do expect that they are going to probably change posted pricing if this continues. But net net, we think it is going to be a relatively flat spread into Q4. Certainly, I think supply will be diminished because of the heavy fall and spring turnaround season. We heard a lot of that last week at the conference. So I expect supply to be certainly muted because of that, and that will give us some strength headed into Q1 on pricing.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay.

Brian Recatto -- President & Chief Executive Officer

We will have to fight the used motor oil side of it.

Mark DeVita -- Chief Financial Officer

Yeah. And then you have the operating cost. Like Brian mentioned, you've got [Technical Issues].

Brian Recatto -- President & Chief Executive Officer

Yeah. Our allocation on hydrogen should be done. December 1 is at least the latest report. We had a plant that was feeding our vendor that literally shut down. It was the Occidental Chemical plant in Niagara Falls was reading our vendors that will cost us that will cost us our production in Q4. But we are still going to produce 49-plus million gallons of base oil for the year. so an outstanding year for us.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay. Your comments about inflation. Is that spread over a lot of things? Or is there one item that is particularly an issue in the ES business?

Brian Recatto -- President & Chief Executive Officer

I mean it's kind of all over the map, Michael. But as you know, we rely on a lot of third parties. We are working hard to internalize as much of that waste as we possibly can. But we are seeing heavy logistics cost. We are certainly seeing it in our third party disposal costs. We are seeing it on labor. We are seeing it on general supplies to support our customers. It's all over. I mean it's been tough to manage. But we have got the price increase over. We should have done it a bit earlier. A little disappointed that we didn't. But we got it done and we are seeing it be fairly sticky. As Mark talked about in his prepared remarks, we are seeing at this point 7%-plus that's sticking right now. So we are pretty happy with what we did on the price increase.

Mark DeVita -- Chief Financial Officer

Another area, anytime you have seen the commodities complex, so steel as far as containers rebound all the time, that probably containers, all of our containers have goner up materially. Some of them are, it's not reaching all of them, but some of them in the extreme, are 50% to 100% increase. And some we have got it bound.

Brian Recatto -- President & Chief Executive Officer

Hard to get equipment, Michael. We have got trucks that were parked because we couldn't get sensors. I am sure you have heard that from other industries. That's beginning to improve. At one point, we had 40-plus trucks down. We now at about 50. But it's been a grind and our people have done an excellent job servicing our customers in spite of all of this. We are a little bit short staffed because of the way we pay our people that get out and hustle house and get the work done. We haven't left any work on the field, that's for sure.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Well, that's good to hear. And then Mark, what are you suggesting we should do as far as the $30 million? Divide by four and allocate it all in to ES predominantly? And at what margin should we ads that? Maybe divide by four and do the 12 week thing?

Mark DeVita -- Chief Financial Officer

Yes. It's mostly ES. There would be a little bit of oil and one just deals with a little bit of oil collection but probably not a ton of revenue from that. So it's mostly ES. On margins, depending on what we see, probably going to be on an EBITDA basis in that 20% range than what we acquired in the low 20s, something like that.

Brian Recatto -- President & Chief Executive Officer

Michael, we have some integration work to do, obviously, with any new acquisitions. So I would prefer not to give you EBITDA target. Let us do our work and we will get you something soon. Great assets though. And asset out in California, we love because it gives us a physical asset in the marketplace that we are trying to expand into that has an oil permit. It has non-haz consolidation permit. It has a California haz permit, We are going to add antifreeze. We are going to add a hub out there which would cut our logistics cost. That really more of an asset deal for us and we will grow off of that business feeding most of our West Coast branches will begin to start feeding that location and we will pull product out of that location which will save us quite a bit of money over the long haul. But we have got some work to do to get there.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Right. So you referring to Cole?

Brian Recatto -- President & Chief Executive Officer

Yes. And the other one is just like us. They are a waste brokerage company, lot of small to midsize generators and waste is going direct third-party. They have got a great technical field services group, which will go out West and try to internalize as much that work as we possibly can. That's a goal for us across the United States that we will look for other opportunities on the East Coast and do the same thing.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay.

Brian Recatto -- President & Chief Executive Officer

And we bought a wastewater plant down in the Southeast, which has non-haz consolidation capabilities. We will be port work out of that location supporting the Miami port area. The cruise launch will recover. So we will be in a position to get that work back. And then it takes in small party generated non-haz waste which fits good with us.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Perfect. So that's a perfect segue. The EI Digest conference in late September and some of the chatter around that conference was that the Heritage Group which is one of your large shareholders was rethinking their portfolio allocation. To a degree, can you comment on any of that? Are they contemplating possible sale of any of their assets? And would that include you all?

Brian Recatto -- President & Chief Executive Officer

Michael, actually I can't get into what the Heritage Group is thinking. I am not on the Board of the Heritage Group. Certainly, our job is to continue to focus on creating shareholder value. The have been in this deal for 25 years and great long term shareholder. And we love having them as a part of our company.

Michael Hoffman -- Stifel Nicolaus -- Analyst

Okay. Thank you very much and nice job. It's always fun to have the wind at your back, isn't it?

Brian Recatto -- President & Chief Executive Officer

Yes, it is nice. I wish we can get the wind at our back from an operating standpoint.

Operator

And your next question comes from Jim Ricchiuti from Needham & Co.

Brian Recatto -- President & Chief Executive Officer

Hi, Jim.

Jim Ricchiuti -- Needham & Company -- Analyst

Hi. How are you guys? Thank you. Yes, most of, a lot of questions were answered. I just wanted to focus a little bit on the M&A side because you did allude, I think, in the last call to some additional acquisitions. Where do you stand with those? And Mark, maybe you could talk to whether there was any acquisition-related expense that you feel should called out, either in the quarter just ended or the quarter you are in now?

Brian Recatto -- President & Chief Executive Officer

I will take the first part and I will kick the balance of it over to Mark. But we are going to slow it down up here just at the end of the year. We want to focus on integrating these three. We certainly have a long pipeline as we alluded to on the Q2 conference call. So we are going to continue to pursue acquisitions with a goal of getting another three to five done 2022. And as always, we are looking for something that could bring us even more scale but those are few and far between. But we are pursuing them. And I will kick business related economics over to Mark.

Mark DeVita -- Chief Financial Officer

Our purely related acquisition cost, as we record them, we have accounts in our general ledger, about $0.25 million. And that would only be, most of that would be related to the Cole, one of the two deals that we closed. If you add it all up, it's probably be a little less than $1 million by the time we add up all the legal fees and all the other stuff for those three transactions.

Jim Ricchiuti -- Needham & Company -- Analyst

Got it. And curious, how long would you guys talk into these folks before you came to an understanding where you were able to close these deals? So Brian, I am just thinking about next year. It sounds like you got an active pipeline. But I am just kind of curious, just given the environment we are in, whether folks are a little bit more valuation sensitive here, given what's happening in the market?

Brian Recatto -- President & Chief Executive Officer

Yes. I would say that the two deals that were not being managed by investment banks, we have had dialogue with both of these companies for 2.5 years. So that's how long it takes to get the entrepreneurs in a position to be willing to pull the trigger on selling a company that they have grown from more often than not from scratch. So it is an emotional battle to get the owners to pull the trigger. So it takes time to build relationships. They want to make sure their people are going to be in good hands with an operator that cares about employees. So I would say, on average it takes us 18 months to two years to get these guys to agree to do it. And then you only need t get it closed and that takes another three to six moths to get it closed. The other one was a little bit quicker because it was a deal that was being managed by an investment bank and they had a little bit more bandwidth than the typical entrepreneur. So we were able to get it done a little bit quicker.

Mark DeVita -- Chief Financial Officer

And hen you kind of look backwards, we add the Director of M&A position for a little more than two years. So now at this time, it fits right with the timeline Brian mentioned and the 18 months time. We probably worked a little bit quicker on some of these because you have got to really take out six months or so for the pandemic. I mean, we were dead in the water while the M&A market was seized up. So I think we are executing fairly well, is my way of interpreting against what I think is great based on time gained. But how that part of the business is, you are only as good as the last deal. So we have got to keep pushing forward. We are going to focus on some integration here in the coming months. But after that, we will turn it lose on getting some of these other ones closed.

Jim Ricchiuti -- Needham & Company -- Analyst

Got it. Thank you. Congratulations, by the way.

Brian Recatto -- President & Chief Executive Officer

Thank you.

Operator

Your next question Your next question comes from Kevin Steinke with Barrington Research.

Brian Recatto -- President & Chief Executive Officer

Hi Kevin.

Mark DeVita -- Chief Financial Officer

Good morning, Kevin.

Kevin Steinke -- Barrington Research -- Analyst

Hi. Good morning Brian and Mark. I wanted to just clarify in my mind the guidance for the mid single digit growth in environmental services in the fourth quarter 2021 versus fourth quarter 2019. is that on an organic basis? Or are you factoring the acquisition contribution to that?

Brian Recatto -- President & Chief Executive Officer

I am still thinking, when you do the math, you are kind of in that same range. Obviously, we won't give a set number, but in that mid single digit growth range would be the answer for, I think would be the organic. And then you heard the revenue numbers if you do the math, it's not going to be that much different.

Kevin Steinke -- Barrington Research -- Analyst

Right. Okay. Got it. Yes, understand.

Mark DeVita -- Chief Financial Officer

That was the original guidance. Best to do it on purely organic. The inorganic will be able to skewed, depends on how you define high and we might not get into what some would high-single-digits.

Brian Recatto -- President & Chief Executive Officer

Yes, I agree.

Kevin Steinke -- Barrington Research -- Analyst

Okay, right. Okay, understood. And you mentioned, obviously, the inflationary pressures in environmental services, but you expect some sequential improvement in the margin there in the fourth quarter. Should we think though that maybe that approaching 27% goal by the end of the year is going to be a little more challenging than you might have thought last quarter?

Brian Recatto -- President & Chief Executive Officer

Yes. I am not to go there and tell you we can get to 27%. We feel good about it, given that the bulk of our projected price increases is sticking and we worked hard to make sure the guys are focused that we have been on the field because of the inflation that we are seeing everywhere. So we will feel good. I am not going to sit here and say we are going to get 27%. But it is certainly going to be an improvement over where we were in Q3.

Mark DeVita -- Chief Financial Officer

Yes. If you do the rough math based on where some of the percentages will come in, yes. But I am not going to contradict Brian, just to reinforce it is certainly possible but we thought 12 weeks ago, at least on a peace of mind that things were going to be a little more transitory. I am not saying that they are going to stay forever but there is a little more leg to the supply chain disruptions and some of the that's there. So it will be hard work to get that done.

Brian Recatto -- President & Chief Executive Officer

Yes. We think the inflationary pressure and the transitory issues that we have dealt with will stretch in even Q1 and Q2, based on what we are hearing from our suppliers. It's difficult conditions out there. Difficult for people to get staffed up and make the products we need which is causing pricing to go up.

Kevin Steinke -- Barrington Research -- Analyst

Right. Understood. Yes, fair enough. Okay. Did you give just the capacity utilization at your rerefinery? If not, what was that?

Mark DeVita -- Chief Financial Officer

It was 111%. I am sorry. I didn't give that. I meant to put that into my remarks.

Kevin Steinke -- Barrington Research -- Analyst

Okay.

Mark DeVita -- Chief Financial Officer

But yes, another phenomenal with record production. I am sure you have not saw that but remember that it's based on an annualization. And you know, whatever quarter we take our larger turnaround and longer more extended turnaround, which is usually Q4, we got back on the cadence this year, you are going to expect, because if you add them all up, all three quarters, so far we are seeing this is BS number that's annual capacity what's really and Brian mentioned, we will probably hit it probably right around 100 for year. Maybe we are tiny bit higher. But that's why the math seems lumpy through three quarters.

Kevin Steinke -- Barrington Research -- Analyst

Right. It will pull back, expect to pull back into the fourth quarter with the turnaround. Okay. All right. You mentioned, I think, in your prepared comments that you will lower volume of third-party used oil purchases, I believe by 35% sequentially. I mean, what enabled that to d that? I think maybe you are experiencing some logistical challenges in getting used oil for the plant. But what enabled you to lower the third-party used buying so much?

Brian Recatto -- President & Chief Executive Officer

I mean our goal in general is that have, to build with our automotive or vehicle maintenance focused initiative. I think we are pretty sure we talked about it last quarter. We are using one of the part of that is driving better oil collection. And we are just, I mentioned our route efficiency. Usually, you would expect when you had several oil sales and service reps, it is not going to come right away and that route is going to be fixed. Again, we are comparing last year to a pandemic low when we had some furloughs and whatnot. But we added people back and we didn't miss a beat. So it's basically just collecting more used oil. And that is in line using the win with one program and just our other efforts to collect more and have more direct relationship with the generators, have them be customers as opposed to having a third-party. So having only about 17% of feedstock that we are sending to the rerefinery be from third party, that might even be a record low. And usually in the summer quarter, it's a little easier. They don't expect to sell hold there whole forever. But overall, we are looking on an annualized basis to continue to drive that down.

Kevin Steinke -- Barrington Research -- Analyst

Okay. Great. Yes, that's helpful. Well, great, that's all I had for now. Thanks for taking the questions.

Brian Recatto -- President & Chief Executive Officer

Yes. Thank you.

Mark DeVita -- Chief Financial Officer

Thanks, Kevin.

Operator

And there are no more questions at this time. Will there be any final remarks?

Brian Recatto -- President & Chief Executive Officer

No. Thank you.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Brian Recatto -- President & Chief Executive Officer

Mark DeVita -- Chief Financial Officer

Michael Hoffman -- Stifel Nicolaus -- Analyst

Jim Ricchiuti -- Needham & Company -- Analyst

Kevin Steinke -- Barrington Research -- Analyst

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Source : https://www.nasdaq.com/articles/heritage-crystal-clean-inc-hcci-q3-2021-earnings-call-transcript-2021-10-22?time=1634873101

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