Heritage-Crystal Clean's (HCCI) CEO Brian Recatto on Q4 2016 Results - Earnings Call Transcript

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Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) Q4 2016 Earnings Conference Call March 2, 2017 10:30 AM ET

Executives

Brian Recatto - President, CEO

Mark DeVita - CFO

Greg Ray - COO

Analysts

Luke Junk - Robert W. Baird

Sean Hannan - Needham & Company

Michael Hoffman - Wunderlick Securities

Operator

Welcome to the Heritage-Crystal Clean, Incorporated Fourth Quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time all caller 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 your question. We ask that all caller 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 he can identify forward-looking statements. These statement involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by those 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 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 or EBITDA are non-GAAP measures. Please see our websites 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, 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 Brian Recatto. Please go ahead, sir.

Brian Recatto

Thank you. I would like to welcome everyone to our conference call. Last night we issued our fourth quarter 2016 press release and posted it on the Investor Relations page of our website for your review. This morning we will discuss the financial results and our operations for the fourth quarter and for fiscal 2016 and we will respond to questions you may have relating to our business.

Our fourth quarter revenues were $106.7 million compared to $100.4 million in the fourth quarter of 2015. Fiscal 2016 revenues decreased 0.7% to $347.6 compared to $350 million for 2015. The increase in fourth quarter revenues in fiscal 2016 as compared to fiscal 2015 was mainly driven by higher charges for our used oil collection services and higher base oil sales volume. The majority of the year-over-year revenue decline was due primarily to lower sales volumes with customers directly and indirectly involved in the energy sector and lower energy surcharge revenue.

Our 2016 fourth quarter EBITDA was a records $11.4 million compared to EBITDA of $0.7 million in the fourth quarter of fiscal 2015. During the fourth quarter environmental services revenue remained flat at $68.3 million compared to the fourth quarter of fiscal 2015. Environmental services revenues decreased $1.9 million or 0.9% in fiscal 2016 compared to fiscal 2015.

During the fourth quarter we stabilized our environmental service revenue and we're optimistic that after several quarters of decline we will return to growth this year. Our growth will be possible through a continued focus on our cross-selling initiative, the addition of new branches in sale resources, as well as the expansion of our merging services such as anti freeze and field services. I have been a part of several successful businesses during my 30 years in the environmental industry and I am confident our renewed focus on the areas I just described will allow us to restore growth in this segment.

During the fourth quarter of fiscal 2016 oil business revenues increased $6.5 million or 20.1% compared to the fourth quarter of 2015. As I stated earlier, the revenue increase in the segment versus the fourth quarter of 2015 was mainly driven by higher street charges and a higher volume of base oil sold. Compared to the third quarter our street pricing during the fourth quarter was lower by approximately $0.04 per gallon. The decrease in street prices was due to competitive created in part by an increase in the price of crude oil and residual fuel.

These same market factors also led to an increase in our costs for third-party used oil feedstock during the fourth quarter of fiscal 2016 compared to the third quarter. Higher prices for fuel oil are continuing to create headwinds for our used oil collection street price and third-party used oil feedstock during the first quarter. Our base oil selling price also faced headwinds in the fourth quarter compared to the third quarter of 2016 as it declined by $0.06 per gallon.

Based on current market conditions we expect base oil prices to move higher

during the quarter. As I begin my second month as President and CEO of the Company, I'm impressed by the enthusiasm, energy and ingenuity of our team. It is these qualities combined with unmatched experience of our team which will be the foundation of the next chapter of our growth story.

During the next few months I will continue to work with the leadership team to refine our strategy with a focus on growing our environmental is services segment revenue and driving improved operating efficiencies in our oil business segment. Our Chief Financial Officer, Mark DeVita, will now discuss our financial results and then we will open the call for your questions.

Mark DeVita

Thanks, Brian. Good morning everyone. I'm excited to speak to our investors today about HCCI's fourth quarter and full year fiscal 2016 results. As Brian mentioned, environmental services segment revenues were flat in the fourth quarter down $1.9 million or less than 1% in the year compared to 2015. The lack of growth in revenue for the quarter was due primarily to week performance in solvent parts cleaning and vacuum services at customers directly and indirectly involved in the energy sector along with lower energy surcharge revenue. Environmental services profit, before corporate SG&A, was a record 30.7% of revenue during the fourth quarter compared to 29.9% in the year-ago quarter.

Environmental service margins were favorably impacted by lower solvent expense and lower disposal costs, partially offset by higher labor costs in the fourth quarter compared to the year-ago quarter. Full year profit. before corporate SG&A, was a record 29% of revenue compared to 28.1% of revenue in fiscal 2015 For the fourth quarter of 2016 oil business revenue was $38.5 million compared to $32 million in the fourth quarter of 2015 an increase of $6.5 million or 20.1%. In addition to higher used oil collection street charges and higher base oil sales volume, the increase in revenue was aid by higher oil filter revenue of almost $1 million.

On the other hand, RFO revenue was down approximately $1.8 million compared to the fourth quarter of 2015 which was main lie due to lower volumes sold. The average price for our base lube oil product decreased by approximately $0.07 from the same quarter in 2015. Oil business revenue was $123.2 million for fiscal 2016 compared to $123.7 million in fiscal 2015, a decrease of $0.5 million or .4%. Used oil collection street charges increased by over $17 million while our RFO and base oil revenue were down approximately $12 million and $9 million respectively.

The average price for our base oil product decreased approximately 22% compared to fiscal 2015. In the fourth quarter our oil business profit, before corporate SG&A, was $1.6 million compared to a loss of $6 million in the fourth quarter of 2015. Our spreads increased year-over-year. Our base oil price to used oil collection street price spread increased by $0.20 a gallon, while our RFO selling price to used oil collection Street price spread increased by $0.35 a gallon. This positive impact was slightly offset by an increase of more than $0.08 a gallon in the price we paid for used oil feedstock from third-party used oil suppliers.

Full year oil business income, before corporate SG&A, was $.8 million in fiscal 2016 compared to a loss of $7.7 million in fiscal 2015. In the fourth quarter our overall SG&A expense as a percentage of revenue was 15.5%, up from 15% in the year-ago quarter mainly due to severance and related costs. Full year corporate SG&A expense for fiscal 2016 was 15.4% of revenue, up from 14% in fiscal 2015 which was mainly due to higher legal fees year-over-year. At the end of the quarter we had $64.2 million of total debt and $36.6 million of cash-on-hand.

We incurred $.6 million of interest expense for the fourth quarter of 2016 compared to interest expense of $.5 million in the year-ago quarter. We incurred $2.1 million of interest expense for fiscal 2016 compared to $1.9 million of interest expense in fiscal 2015. For the fourth quarter we recorded net income of $3.4 million compared to a net loss of $2.5 in the fourth quarter of 2015. Our earnings per basic share for the quarter was $0.15 compared to a basic loss per share of $0.11 in the year-ago quarter. After adjusting for severance and related costs our adjusted basic income per share during the fourth quarter would have been $0.20.

For fiscal 2016 we experienced net income of $5.8 million compared to a net income of $1.3 million in 2015. Our basic earnings-per-share was $0.26 for the year, compared to basic income per share of $0.6 in fiscal 2015. After adjusting for severance and related costs our adjusted basic income per share for fiscal 2016 would have been $0.31. We generated $14.1 million in operating cash flow during the fourth quarter and $38.1 million in fiscal 2016. This represents a 32% increase compared to fiscal 2015.

During the first quarter we entered into a new credit agreement to refinance our bank debt outstanding at the end of fiscal 2016. Our new $95 million credit facility consist of a $65 million revolver and a $30 million term A loan. As part of this transaction we used our cash on hand to reduce our outstanding bank debt by approximately $30 million since the end of 2016. Also during the first quarter we received a partial award from our ongoing abrasion related to our acquisition of FCC Environmental in 2014.

As part of this partial award we received a $5.5 million cash payment for our working capital adjustment and related interest. We will record a gain related to the award payment during the first quarter of fiscal 2017. We expect the remaining portion of this abrasion to conclude during the second quarter of fiscal 2017 with a final ruling during the second half of fiscal 2017.

We expect to incur additional legal fees of approximately $1 million in relation to the final portion of this arbitration. As part of the arbitration we will continue to seek reimbursement for these costs. Thank you for your continued interest in Heritage-Crystal Clean.

At this time I would turn the control of the call over to our operator and she will advise you of the procedure to submit your questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Luke Junk with Baird. Your line is now open.

Luke Junk

First question, a couple questions in the environmental business actually. First I was wondering if you would be able to break out to growth at your energy influenced branches versus non-energy branches, I think you provided some color on that last quarter. And also, maybe I'm splitting hairs here but I have my notes that comps were track up a bit to start the fourth quarter and obviously we ended up flat. So maybe if you could take some. Moving parts that just led so some of that flattening exiting the year.

Mark DeVita

Yes. No problem. This is Mark. I'll take your questions in order. So we have given that color before and I'll give an update for the quarter for Q4 anyway. We had roughly 4% growth in our non-energy sector impacted branches, they're the ones that were not impacted to a great extent and were down about 13% in the ones that were.

And as far as the trajectory of the quarter, obviously, Q4 for is us is an abnormally long quarter compared to calendar quarter and we did have initial positive signs. They weren't something where we were -- had 5% increase in revenue or whatnot in the first couple weeks of Q4, but we did have an increase. A lot of what we ended up having and again we weren't really down, we were basically flat, was just due to seasonality.

Typically we see lower volumes, service volumes, etcetera in the ES segment businesses as the year-end and whatever slight ahead of last year performance we had at the beginning of the quarter dissipated as we got near the end.

Greg Ray

If I can add a quick comment on the energy sector impact, once again proxy for how we have -- that's have this negative impact has just been looking at drilling rigs and service and for the last two plus years the year-over-year comps on drilling rigs have been negative, a decline in activity in that sector and February 2017 is now the first time in two years we have seen that get to breakeven and it looks like a slight uptick in activity. So at least headwind should be behind us after the first quarter.

Brian Recatto

Luke, we probably added to the -- the oilfield market 250 plus drilling rigs with a heavy concentration of them in West Texas, New Mexico. I think the best second market for drilling rigs would be Oklahoma which certainly would benefit the branches in those two marketplaces. To a lesser extent we haven't seen a ton of new rig activity in Texas, but we do expect, as we get further into this up-cycle in the oilfield, that we will see rigs added to Texas as well which will further help us.

Greg Ray

And for anybody who's not familiar with this we do not do significant volumes of work that's directly related to the oilfield activity. We're not out servicing rigs, but it has an indirect effect that's substantial on our business. We're talking about the service companies that have activities supporting the crews that are out in the field and their business ebbs and flows with oil prices and oil drilling activity and when that business is off as it's been for the lost two years the amount of waste that we get from these customers or their parts cleaning needs or vacuum service needs diminish accordingly.

So that's where we felt this pressure and that's where we're optimistic that we're seeing light at the end of the tunnel.

Luke Junk

And then a follow-up question on the pricing side. Obviously we're in the time of the year for where price increases are going into effect on parts washing and whatnot. I think I had in my notes that you were looking ballpark in the single digits in term of pricing which would be pretty typical. Two questions related to that, one, are the things, to this point, basically tracking in line with the in terms of environmental pricing and then second, just in terms of timing and how it roles into the first and second quarter here. I assume that we would -- should assume that there's more impact on the second quarter than the first quarter? Is that the right way to think about it?

Mark DeVita

This is Mark. The first part of the your question, we would expect to have the normal realization as far as our environmental services segment business its price increases, the timing of which should be in line with what we have traditionally done. We similar to past years have got our price increase in place in the second half of the fourth quarter and there is usually a little bit of impact in Q4.

We do have some flexibility for our people in the field to get this implemented, meaning from a timing standpoint. So if they go out and they haven't had the time to have a discussion and they need to, let's say, at large organizations work through several layers maybe a personnel or management to get things implemented that's why we see more of a full implementation in Q1 and Q2 would be maybe slightly more of a Q1 should have a large portion of it realized.

Luke Junk

Okay. And then last question for me. Switching over to the oil business I know in prepared comments you mentioned some of the factors relative to sequential trends in charge for oil and in spot prices as well on the base oil.

Make if you could just put all of that together and walk through I guess it was about 150 BPS of margin decline from 3Q to 4Q. Can you just walk through all the pieces. Was there anything else beyond the pricing changes or is it just the [indiscernible] in the base sale pricing really?

Mark DeVita

Those were the two biggest ones, were base oil and street price. We did have I guess the third largest piece and, again, it wasn't much of a change from Q3 to Q4. So they're all relatively small, but trans was also a headwind of about 1% or a little more. The biggest ones were base oil and street price.

Operator

And our next question comes from the line of Sean Hannan with Needham. Your line is now open.

Sean Hannan

The first one on environmental services. I'm just trying to get a better understanding around how you grow that piece of the business. So we get into 2017 the comps become more favorable, we have less of a drag, you talked a little bit earlier about cross-selling, expanding branches, expansion of services such as antifreeze.

So I suppose where I'd start is, what do you see within the field that's giving you the encouragement of say the cross-sell that can create some revenue pick up or what have you done in antifreeze services, how do you see that being able to expand, etcetera? Can you provide us a little bit more color around that because I think that beyond just getting -- past the negative comp we want to see a little bit more in terms of how we progress forward from here.

Mark DeVita

This is Mark. I'll add some -- or I'll give you some comments and feedback and then Greg or Brian can add. You know, cross-selling was -- and it was masked by the headwinds we had from the energy sector that we've seemed to talk a lot about the last three or four quarters, but we were at a rate where this is a $5 million, $6 million additional revenue effort that we think we can gain and certainly on a quarter-over quarter basis that equivalent number and we -- we're demonstrating that, certainly, in the second half of 2016.

So this is -- this is more of a change in behavior for us. It's not a one time project. So we just want to keep doing what we have already been doing.

It's not as evident in the actual overall results for the revenue for the environmental services segment simply because of those other headwinds that have masked it, but as far as antifreeze goes, there are -- some other new businesses, Brian mentioned it in his prepared remarks, we're investing in adding new resources and a lot of those new resources are specifically, for example, antifreeze new sales and service reps in that market.

So we're doing some work to create a good foundation for the locations or branches where we add those. I don't want to get into too much detail there, but it is through the actual headcount addition and more people and trucks on the road that's going to help us. In addition to the ones that we have added over the last several years. Many of those, outside of legacy acquisition routes are no where near efficient yet -- or not efficient yet but nowhere near fully lead he had so they have a lot of routine way left, I don't know, Greg, if you wanted to --.

Brian Recatto

I had a comment or two. Sean, obviously I have been on the Board for a few years and I have watched the events unfold around the oil business and how difficult that's been. We also did a fairly large acquisition which took our focus away productivity environmental business.

I can tell you now that that's the part of the business that I like the most. I'm a hundred percent focused on ensuring that we push our field guys and, as Mark talked about, we have had added personnel. We're going to continue to add personnel.

We're committed to opening up branches this year. We're going to continue to be opportunistic if we see a tuck-in acquisition or two. It's the part of the business that I absolutely love.

We have had a lot of branch calls already this year. We're doing a lot of field visits. I think we have momentum building relative to the environmental business and I'm confident that we can get back to some level of growth as you guys are -- have consistently seen from there Company in the past.

Greg Ray

And as a follow-up to that we're quite pleased with the -- the strong ES margins we've got and are not reluctant to spend some of that money going forward on investment in faster growth. There are a number of opportunity to do that. Antifreeze is one of them, whereas we put out new trucks too market that don't currently have that service we're able to get them base loaded and up to breakeven fairly quickly and so that's just one illustration, but as you know we have done the same thing with other services and branch openings and investing in growth opportunities and then bringing them to fruition.

So we have the resources to do that. We're not over levered and we have got the enthusiasm to get back to growing our ES business and we're committed to doing that.

Sean Hannan

So is this a scenario where you start to tick up in term of slower smaller increments of year-on-year growth, you know, first quarter and it works through where maybe second, third quarter you can get back to an upper single digit type of year-on-year comp or how do we think about that materializing at this point now for 2017?

Mark DeVita

Well, I think you in general have a good feel for what we expect. I would tell you it might -- Q2 might be a little soon to get to the high-single digits. It's probably more of a second half event, but we certainly want to be and expect to be in the high-single digits in the second half of the year.

Brian Recatto

Yes, run-rate of second half of the year.

Mark DeVita

Yes.

Sean Hannan

Okay. And then last question here. I'll jump back in the queue. So if I back out the non-recurring charges such as severance and so forth, for this quarter versus the quarter a year-ago, it looks to me unless I have done the math incorrectly that your SG&A is up about 23%. So I'm just trying to understand that a little bit better and how we think about you managing your SG&A from here. Of course, understanding that you're putting in some investments arranged moving that environmental services a little bit more but just want to see if we can reconcile a little bit of that and get a good perspective. Thanks.

Mark DeVita

Well, for SG&A most of the increase and we have to probably get a little granular. We could probably do that offline, Sean, as to making sure -- when your identifying and we have done some of that here in the press release and the exhibits, the information at the back of it, but make sure that you you're stripping out all the one time or non-recurring costs.

That's obviously somewhat subjective item, but I can assure you that a vast majority of the costs that we have started to spend and will continue to spend in investing in new resources be it sales and service smell for new businesses or even just now white collar sales people all the different things we're doing these are not going to be SG&A items for, you know, for the momentum part. So that's not a driver of any increased SG&A.

We think we have opportunities not only on operating expense but in SG&A to reduce it, but if you takeout the noise we're relatively flat is our view on SG&A. It's still a number that we can drive down, we believe, but I guess it really depends on how you are defining the non-recurring items.

Greg Ray

Isn't a big block of the non-recurring related to the legal and arbitration.

Mark DeVita

Yes. And some of that is broken out but yes. Exactly.

Sean Hannan

Yes. I had pulled some of that out, but we can go through it offline. It sounds like in terms of maybe a weekly run-rate from here, there shouldn't be much of an taking for that to pick up. Maybe there's even an opportunity for that to move down, but we'll see. Is that fair?

Operator

[Operator Instructions]. And our next question come from the line of Michael Hoffman with Stifel. Your line is now open.

Michael Hoffman

Thank you, all, for taking my questions. If I can circle back on the SG&A just to make sure I understood all that, you would anticipate, in absolute dollars given the non-recurring aspect of these legal fees, to be down in absolute dollars in 2017 all things being equal.

Mark DeVita

Yes.

Michael Hoffman

Okay. And if I stripped the legal fees out, you're describing it as being flat year-over-year?

Mark DeVita

It's not just legal fees.

Michael Hoffman

Go ahead. Sorry, Mark.

Mark DeVita

No. It's not -- you know, we'd have to get a little more granular. Generally, yes.

Michael Hoffman

So if I use $45 million, $46 million for SG&A next year, I'm -- you're okay with that?

Mark DeVita

Are you including D&A?

Michael Hoffman

No.

Mark DeVita

And it's SG&A related? Yes.

Michael Hoffman

No. Okay.

Mark DeVita

Yes then.

Michael Hoffman

Okay. Cool. Let's talk about growth. If you thought about looking across your branch network today and down at the individual customer, what's the average number of services of parts [indiscernible] or used oil and anti freeze and oil filter? What's the average number of services compared to Best-in-Class and where can we move that to support this idea of organic growth?

Mark DeVita

Greg, I don't know if you want to take that.

Greg Ray

I just don't if specific disclosed that before.

Mark DeVita

We haven't but maybe directionally you can. Or on our personal business cars how efficient.

Greg Ray

Yes. Well, I can tell you your question is actually helpful to illustrate that when we talk about cross-selling we're not just talking about telling our guys hey, go sell more. We're actually -- we have created a system where we're measuring this. We just haven't been transparent about disclosing this in public, but the number of services on average that we do for a customer, if you run across our six or seven most substantial services, is less than two.

And we think that that suggest there's a really big opportunity because the majority of our customers have the potential to use, certainly, three or four services that the Company provides and in some cases they could use six or seven services. And so what we're doing is developing systems that point each of our different specialized reps to the particular opportunities on their route to talk to prospects about other services that they could be using and they're not using and then getting them to talk about it with incentives and rewards and gathering leads and feeding those back to the appropriate rep to go and prosecute those opportunities.

We did it largely in a test mode in 2016. It worked very well with substantial improvement in the cross-selling metrics of branches and we attributed that it added millions of dollars of revenue during the year that we wouldn't have gotten otherwise. And so we're expanding on that concept and using those tools starting in 2017. And I don't think we're going to want to sort of tell you what the numbers are on an absolute basis, but as Mark said, we may be able to report statistically some information in this year to tell you how we're doing with the project.

We'll give some thought as to how to best describe it so that you can see the results, but it is proven to be effective at selling and improving all of our lines of business. We had thought, as we were testing this, that maybe we would find that one or two of our business were the low hang fruit and the easy once to cross-sell and we learned otherwise that we can really grow all of our businesses if we use these methods. So I think that's maybe only a partial answer to what you were asking for, Michael. I hope that's helpful.

Mark DeVita

And can I add one quick additional question or reminder, I guess, to the other stock we were just talking about, Michael. Don't forget we do expect to have additional legal costs that are, we call non-recurring or extraordinarily related to our arbitration. I mentioned that earlier. At this point we estimate around $1 million and that would definitely be in SG&A.

Michael Hoffman

Okay. So $45 million plus $1 million for that plus your -- the DNA and that's the way to think about it?

Mark DeVita

That's in the range.

Michael Hoffman

Okay. Greg, if I could piece out a little bit in your answer. In the test branches if you were less than two, what did you improve to?

Greg Ray

The number improved -- if you think about the number measured by number of services, it's not a dramatic increase when we look at it as how many services the average customer uses. A tiny change in that number moves the topline needle a lot, Michael. So I think maybe we -- on average might have improved at something like just a couple of hundredths but it represented millions of dollars of revenue and that's part of the problem figuring out how to report this.

Michael Hoffman

Okay.

Greg Ray

I could tell you that we added -- if you think about a unit of measure that's a customer service, so we have a customer who uses two services today and we add one and get them to three services we added one customer service, if you think about that, we were adding during our test across the Company more than a thousand customer services every four weeks while we were doing this test over an extended period of time. And so, again, it doesn't -- it's very slow to move that needle in terms of this because we have so many customers, but adding a thousand customer services is worth a lot to us, in some respects it's close to the value of adding a thousand new customers if we only had one service and we add a customer and so that's very productive.

Michael Hoffman

Okay. Fair enough. Can we just understand a little bit of the trends so we're managing our modeling expectations. A flat 4Q probably is a down 1Q for seasonal issues and then you reverse it back to slightly positive and then it accelerates that's the way to think about ES.

Mark DeVita

I think that's logical, yes.

Michael Hoffman

Okay. That helps. And then could we switch to used oil. Just get a couple numbers. What was the plant utilization?

Mark DeVita

It was 92%.

Michael Hoffman

Okay. And was that as you expected or was there any unusual downtime beyond putting in the new heater? Or bigger heater.

Mark DeVita

There was no -- there was no issue with new heater whatnot. You know, we expect to run at a higher rate than that to be honest. We did that the first couple quarters of last year, we were at 96 6%. And Brian mentioned it at the top, there's efficiencies to be gained both on the cost side and leveraging the asset which obviously both profitability from different directions but both provides profitability. So this was not an optimal performance quarter to be honest.

Greg Ray

And to give you visibility into Q1, we typically have about one turnaround shutdown and reactor change a quarter and just because of the timing of the dates, I'm not sure yet, but it's more likely than not we'll end up with our second shutdown in Q1 because it will be at the end of the quarter or we'll have one and a half and it will crossover at the end of the quarter so we may have reduced production, slightly less because of that in Q1 than we otherwise would.

Michael Hoffman

Okay. So you could be sub 90% in Q1?

Greg Ray

I think that's probably fair. Close to 90%.

Michael Hoffman

Okay. And then can you share -- you shared this in the past, gallons processed -- produced gallons sold.

Mark DeVita

Yes. It was 12.7 and 12.6 for production and sales for base oil.

Michael Hoffman

Okay. And RFO gallons sold?

Mark DeVita

We did a little less than six million-gallons in volume

Michael Hoffman

And then am I correct that -- I mean the base oil has had a nice move in January. It's paused a little bit here in February as many people are trying to figure out going down for turnaround or not, but it would appear we've got pretty significant price increase year-over-year based on the average of all of last year. If that just holds there's a pretty nice tailwind just on that alone.

Mark DeVita

Well, we're -- you know, comps is one thing. When we look at where we're Q3, versus Q4 versus now we basically lost -- you know, you lost -- well, it was different on market price. Market price if you look at spot through one of the services we were down $0.12.

Now, our pricing our sales guys did a really good job, we weren't down that much and we've pretty much rebounded here in -- after one period or one full week accounting cycle for us, to be about where right now or at least for that cycle -- I shouldn't say right now. That's the first four the year, they're around the same point we were for Q3. Is there more tailwind there? We believe and Brian remarked or talked to it, we think there is at least through the next couple months some more headwind going into the spring -- or tailwinds I should say for further increases. It's hard to tell how much.

Brian Recatto

Yes, exactly. This, Michael, you're right. It's driven by refinery turn affidavits and maintenance. Obviously we think crude is range bound and we're not going to sit here and predict the price of crude, but we do think we'll get about near term and then it will probably flatten out is our current forecast.

Michael Hoffman

Okay. I'm probably way too in the weeds the way you described that, but I mean at the simplest level, am I sitting here with a $0.20 or $0.30 tailwind when I look at all of the average of last year's price versus where I am on the post -- the spot price today? That's what it appears like, It's about a $0.30 gap right now. Am I misreading that spot. I mean, that's the public data that's on Lube Report, blah, blah, blah.

Mark DeVita

Well I can speak to what our spot data is. Our spot data is saying right now and I'll start back Q3 it was around a little less than $1.70 for the quarter, then for Q4 about $1.56. Now it's up to the high 170's and, you know, it -- it has some room to move in the coming months, but if you look at Q1 last year, we were at -- yes.

So you're probably right. At Q1 last year for a spot it was down in the mid-130's. So there is probably even more than what you're seeing on a year-over-year basis.

Michael Hoffman

Yes. And then the energy price moved around and so when you look on a full year average. Okay. So there's a nice tailwind in theory if you held the packet same utilization, same amount of gallons got nothing he will I've got a price lever I should be able to count on.

Mark DeVita

You know, Brian mentioned, there is tremendous competitive pricing on the front end of the spread. So if you're looking -- you know, year-over-year for Q1 you remember -- we don't give compact numbers, but you remember in that range that we were at for Q1 we had gone from Q4 2015 of charging a $0.015 up in that $0.30 range and we've had pressure downward, not only from Q3 to Q4, but Brian alluded to, we have had additional pressure to the tune of $0.05 or whatnot on Street price already in Q1 so far. So and that doesn't seem to be subsiding.

So we're going to eat up, on a year-over-year basis we're going to eat up a lot of spread that you might get on the back end improvement with a potential deterioration on the front-end.

Michael Hoffman

Yes, but I mean if I'm collecting a hundred gallons on front end and you're back I can 60 on the back which is your rough average and I'm only down $0.05 on the solvent end and up $0.30 on the back, I mean I still got -- it should be a favorable spread?

Mark DeVita

Well, you got to look at the weighted average for the fourth quarter for us. That's a pretty long quarter. It was trending downward at the end. So $0.05 is from that downward -- or not from the downward but -- you know, the other thing you got it look at is third-party. We're buying in over 20% of our volume that we did in Q4. Brian mentioned this as well. Fuel -- residual fuel and other fuel oil prices are putting pressure on that number as well. That's climbing for us. So we're getting hit on both ends of the feedstock game.

Operator

And we do have a follow-up question from Sean Hannan with Needham. Your line is now open.

Sean Hannan

Thanks. After that thorough questioning I actually have a lot of things that are now answered. One thing just to check back on stat wise, did I hear an average for the same branch sales and average sales per working day for the environmental services side?

Mark DeVita

No. We haven't spoke to that. Mainly because we really haven't added or at least through 2016 now we have already taken step to add branches here in the beginning of 2016 officially, but the branch count was basically the same so you're basically looking at the same branch sales as similar to our overall ES sales because, again, we don't include oil sales as branch sales multiple pulp.

Sean Hannan

Yes, the rotors were flat. Yes.

Mark DeVita

You're basically looking at a flat story, yes.

Sean Hannan

Okay.

Mark DeVita

Should we get back in the growth mode and if there is -- if there is a meaningful difference we'll get back to reporting that in the future.

Operator

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

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