Heritage-Crystal Clean's (HCCI) CEO Joe Chalhoub on Q3 2016 Results - Earnings Call Transcript

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Heritage-Crystal Clean, Inc. (NASDAQ:HCCI)

Q3 2016 Earnings Conference Call

October 20, 2016 10:30 a.m. ET

Executives

Joe Chalhoub - Founder, President and CEO

Greg Ray - COO

Mark DeVita - CFO

Analysts

Michael Hoffman - Stifel Nicolaus

David Mandell - William Blair

David Manthey - Robert W. Baird

Sean Hannan - Needham & Company

Kevin Steinke - Barrington Research

Operator

Good morning, ladies and gentlemen, and welcome to the Heritage-Crystal Clean Incorporated Third Quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time, all callers' microphones are muted and you will have an opportunity at the end of the presentation to ask questions. Instructions will be provided at that time for you to queue up for your question. We ask that all callers limit themselves to one or two questions.

Some of the comments we will make today are forward looking, generally the words aim, anticipate, believe, could, estimate, expect, intend, may, plan, project, should, will be, will continue, will likely result, would and similar expressions identify forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks and uncertainties include a variety of risk factors, some of which are beyond our control. These forward-looking statements speak as of today and you should not rely on them as representing our views in the future.

We undertake no obligation to update these statements after this call. Please refer to our SEC filings, including our annual report on Form 10-K as well as our earnings release posted on our Web site 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 Web site.

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 Web site for reconciliations of these non-GAAP financial measures to GAAP. For more information about our company, please visit our Web site at www.crystal-clean.com.

With us today from the company are the Founder, President, and Chief Executive Officer, Mr. Joe Chalhoub; the Chief Operating Officer, Mr. Greg Ray; and the Chief Financial Officer, Mr. Mark DeVita.

At this time, I would like to turn the call over to Mr. Joe Chalhoub. Please go ahead, sir.

Joe Chalhoub

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 Web site 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. It is a decrease of 1%. Year-to-date, revenues decreased 3.5% to $240.9 million from $249.7 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 [technical difficulty] for an 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 segments represents a record high, and is the second straight quarter we've 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.

Mark DeVita

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 and 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, so as with minimal exposure to the energy sector continue 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 the 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 not of other income items of $1.4 million. Included in this is $1.6 million of expense to set up compliance issues which predate our acquisition of FCC Environmental. With this settlement we expect that we have recognized the majority of the costs 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 in 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 2016 compared to interest expense of $404,000 in the year-ago quarter. For the first three quarters of fiscal 2016, we incurred $1,432,000 in interest expense compared to $1,366,000 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've been $0.22 per share.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Michael Hoffman with Stifel. Your line is now open.

Michael Hoffman

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

Joe Chalhoub

Good morning, Michael.

Michael Hoffman

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%.

Mark DeVita

That's correct.

Michael Hoffman

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?

Mark DeVita

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'd expected. You probably remember, as we've 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% or 5% range. We might have thought it might have been a hundred basis points or less higher, but it was generally what we expected.

Greg Ray

If I can add something, Michael, this is Greg speaking. When we talk about ex-energy it 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. And 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're 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're 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 [ph] 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's not doing as much work for customers that are in Louisiana, but we can't discern those differences.

Joe Chalhoub

And if I add to that, Michael, part of your question here is -- just to add the -- give you a little bit of color here. This current quarter we're seeing positive movements here 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 a year ago. And so we're optimistic about that, and I will see how the quarter goes.

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

Michael Hoffman

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?

Joe Chalhoub

Well, you know we don't really get to the -- and 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 -- and -- but a nice increase in the first few weeks -- the first period, I would say, of Q4.

Michael Hoffman

Okay. So if I could shift gears to the used oil business, you're providing a date and point [ph] beginning in 2Q of the 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're 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?

Mark DeVita

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

Michael Hoffman

Okay, that's a good trend.

Joe Chalhoub

Yes, but as far as further improvement here as we go forward, as you know, depending on what happens with the price of crude and -- so we're not expecting at current price of crude that we'll 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 have gone up by $4 or $5 a barrel people selling fuel -- recycled fuel have seen some revenue increases, and we're obviously competing with them on the used oil service.

Michael Hoffman

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?

Joe Chalhoub

Well, we should be doing better than that. We've had a scheduled 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 we'll -- barring any surprises, that we should be able to deliver something better than what we did in the third quarter.

Michael Hoffman

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 just 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?

Joe Chalhoub

Yes, I have my thoughts on this and our people, and I will tell you comments from other players in the industry. We just came back from a yearly conference of the lube manufacturers. And the industry is surprised because there were some noses up with crude going up by $4 or $5 a barrel, but then the increase. People did not follow -- I mean I'm talking about the majors, did not follow the Chevron, there was an increase by Chevron. And rather than having Shell follow Chevron, and they dropped their price. And so we're -- everybody in the industry is surprised. And it's hard to predict this but if crude stay where it is or move a little bit higher I don't see how can Motiva justify their drop over an extended period of time.

Michael Hoffman

Okay, thank you.

Joe Chalhoub

Thank you.

Operator

Our next question comes from the line of David Mandell with William Blair. Your line is now open.

David Mandell

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

Mark DeVita

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 per cent to gallon basis follow usually what you see in spot. That is down still though over 10% from the year ago quarter. So the trend was technically up. And based on what Joe was saying and the pervious caller alluded to, there's 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 the N100, N220 or the light viscosity products that are similar to what we're making.

So I don't know 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.

Joe Chalhoub

Yes, I'd 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 this 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 again on the Motiva drop reflects. In addition, I'd like to highlight that we do sell, outside of base oil, we do sell other hydrocarbons, mainly fuel. Whether it is the 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 a barrel, and usually fuel tracks crude oil.

David Mandell

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?

Joe Chalhoub

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.

David Mandell

Thanks for taking my question.

Joe Chalhoub

Okay, thanks, David.

Operator

Our next question comes from the line of David Manthey with Robert W. Baird. Your line is now open.

David Manthey

Thank you. Hi, guys.

Joe Chalhoub

Hi, David.

David Manthey

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? And then 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 do -- run the re-refinery at 100% and hope spreads are favorable?

Greg Ray

David, this is Greg. I'll start with the environment 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 things that I think Mark or Joe mentioned was cross-selling and you know that we've got roughly a hundred thousand customers and we have 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 right market opportunity because quite a few of those accounts or customers came to us in the last few years through oil acquisition where the only service that we were providing was used oil collection. Many of these often need parts cleaning services from waste services and increased cycling services or other things, we can do for them. And I think we're starting to get a little bit better at cross selling. We are developing metrics and tools for that. I am not going to give you any quantitative forecast for that right now, but that's one of the things we think helps us improve our growth rate in the 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 antifreeze business or service. We got into that a couple of years ago through a couple of acquisitions that has legs. We're doing a good job of growing that organically. We may additional tuck-in acquisition opportunities with that. And it's something that a majority of our customers can take advantage of. And so we think there is 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. Didn't do a lot in adding branches, but we're starting to open up some new branches and get back on track for growing bit more geographically although there is 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 other things we are doing with environmental services. Joe, do 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.

Joe Chalhoub

Yes, I can -- I can answer this. Relating to the oil business, we do have plan to further improve the oil business as far as the outside of pricing and spread and cost reduction, but our view at this stage is to hold back on that -- these capital investments until we see a better return and get some of the efficiency already in place. But we do have on our books a couple of projects with short-term payout. We would work on projects that are a couple of years payout and -- but at this stage we are holding back to see better results in oil.

Greg Ray

Okay, so we covered what you want to hear, David?

David Manthey

You did. Thanks, Greg. Just one other question, as it relates to the improvement in your charge for oil effort, it seems like there is distinct difference getting a higher price per gallon versus charging a stop fee in terms of the stickiness of that type of arrangement. Can you talk about your current mix relative to the stop fees? Is it a bigger percentage of the improvement you are seeing? And if not, is it something that you plan on do going forward?

Greg Ray

I'll take a stab at that. From the operator's point of view or a marketer's point of view, I guess is 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. And we have customers 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. And so, we are pricing based on what we think the market will bear. And we kind of 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 a vice versa we are just flexible to making changes. We think that in general our competitors are often similarly oriented to getting the price and whatever mechanism or form they can. So, we haven't seen that there is an overwhelming trend that companies in our industry are all going to either a stop fee or per gallon price. Is that what you are asking?

David Manthey

Yes, that's great. Thank you very much.

Mark DeVita

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

Operator

Our next question comes from the line of Sean Hannan with Needham & Company. Your line is now open.

Sean Hannan

Yes, hi. Good morning. Thanks for taking my question here folks. And I am sorry if it's going to seem like I am beating a dead horse. First on the environmental services, I think as seen by a number of questions in the call, analyst had picked up on that 4% growth. As I step back, my thought process has been this is really more of a upper single digit to double digit growth business for you and that we 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 is a pretty good delta in order to accomplish that. I realized there is going to be some better comps once we get into the New Year. But I am 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 of about over the next couple of quarters the type of growth recapture that we can accomplish?

Joe Chalhoub

This is Joe here. Our objective is to drive this thing significantly more than the 4% that we've seen and we -- 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, and -- but we also need to recognize that our organization for two or three quarter or in late last year and earlier this year at the branches preoccupied with six finger spread on the used oil. And -- so that has affected us a bit, but we're not going to be satisfied with the 4% increase in ES revenue. And we're working on many angles to try to boost this throughout the company.

Sean Hannan

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-Q2? Or did I not interpret correctly?

Joe Chalhoub

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

So again, 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, but we don't want to at this stage promise the high single-digit growth in the beginning of next year. So it will be a step-by-step improvement.

Sean Hannan

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.

Joe Chalhoub

Yes. We are expecting an improvement. I mean 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, and it was a major shutdown. This was not just a regular shutdown. And so, our operating cost for the quarter was higher than the trailing few quarters ahead of it.

And so, that's one factor. We talked earlier about the throughput, any improvement in throughput from the 92% should help us. Between these lower cost 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.

Mark DeVita

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

Sean Hannan

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.

Mark DeVita

Yes, 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 of Q2; excuse me, Q3, you got a couple of million dollars extra or close to that. We always have some, like most companies, some legal fees, but it's close to probably $1.8 million or so, of excess. So if you strip that off, you are probably down, I think it was $11.72 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.

Sean Hannan

Great. Thanks so much.

Operator

Our next question comes from the line of Kevin Steinke with Barrington Research. Your line is now open.

Kevin Steinke

Good morning, everyone.

Joe Chalhoub

Good morning, Kevin.

Kevin Steinke

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?

Greg Ray

I think that's part of it, Kevin. I mean, I think that we certainly feel like -- well, we haven't been in a very strong growth environment for manufacturing. I'd also kind of repeat what Joe said earlier that our people have been spending a lot of energy managing oil price changes and dealing with customers who need hand holding the 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 on to 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.

And that took not only the took the resources but it took time and attention from some of our more senior sales people so they were having to do extra duty to talk to well established customers and sell them on this. And 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 or manufacturing a customer base.

So we're excited to feel like these oil price changes are largely behind us. Then 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 been able to add accounts in our environmental services business and what manufacturers and we want to resume at.

Of course with the continuing focus, we've always had on the small to mid-sized 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 that to be getting ES back fairly quickly and high single-digit growth rates. But we can't pick what quarter that's going to materialized, particularly because we can't measure precisely what these headwinds will feel like in Q4 or Q1. But we'll try 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.

Kevin Steinke

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

Greg Ray

Yes, we are targeting the same ballpark range that we historically have in that 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 in another years.

You know our track record and then every year except for the great recession we've typically achieved sort of in the 80% or 85% range of what our nominal or posted price increase was, and so, we're expecting to get to the same outcome this year as well. And that obviously gives us a lift in terms of our revenue growth, support to us to be able to sustain and potentially improve our margins in ES and so we think that this is something that we're planning on accomplishing in the coming quarter or two.

Kevin Steinke

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?

Mark DeVita

We've continued to benefit even in Q3 from a theme that we benefited from the last four plus quarters, which in our parts cleaning business are 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 of the lower fuel charges, our diesel fuel costs have continued to come down. So, those were the two of the bigger positives. There were some headwinds offsetting some of that labor and benefits and then -- but some counterbalancing from improved insurance. So, these are the two biggest things are really commodity-driven.

Greg Ray

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 benefits 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 is how positive impact on our overall ES margin, is that fair?

Mark DeVita

Yes.

Kevin Steinke

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?

Joe Chaloub

Yes, this is Joe here. It's an option for us. You know, we've been looking at this as a possible step. So we've had this for the last couple of years, but we haven't acted on it, and on the short-term I don't see us doing 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 margin or business. And I think we can do it by improving our cost structure, and efficiency at the really fining plan.

Kevin Steinke

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

Mark DeVita

Thanks, Kevin

Greg Ray

Thanks, Kevin.

Joe Chaloub

Thank you, Kevin.

Operator

We have a follow-up question for line of Sean Hannan with Needham & Company. Your line is now open.

Sean Hannan

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?

Mark DeVita

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

Sean Hannan

Great, thanks much folks.

Mark DeVita

Thanks, John.

Joe Chalhoub

No worries.

Operator

[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.

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