Earnings Call: Q1 2019

May 1, 2019

Greetings, and welcome to the Clean Harbors First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Michael McDonald, General Counsel for Clean Harbors. Thank you. You may begin. Thank you, Matt, and good morning, everyone. With me on today's call are Chairman, President and Chief Executive Officer, Alan S. McKim EVP and Chief Financial Officer, Mike Battles and SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, May 1, 2019. Information on potential factors and risks that could affect our actual results of operations is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revision to the statements made in today's call other than through filings made concerning this reporting period. In addition, today's discussion will include references to non GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of non GAAP measures to the most directly comparable GAAP measures are available in today's news release on our website in the appendix of today's presentation. And now I'd like to turn the call over to our CEO, Alan McKim. Alan? Thanks, Michael. Good morning, everyone, and thank you for joining us. Starting on Slide 3, we opened 2019 with a strong Q1 performance, posting a 4% increase in revenue and a 15% increase in EBITDA, driven by our Environmental Services segment. The quarter also included a few items, both positive and negative, that netted out to a benefit of approximately $3,000,000 to $4,000,000 of adjusted EBITDA. In mid March, a chemical storage facility that abuts our Deer Park incineration location caught fire. Thankfully, no one was injured and our location sustained no damage, no structural damage, but our facility was shut down for the better part of 2 weeks due to both the response to the fire as well as air quality concerns. During that time, our team did a terrific job responding to our customers' needs and rewriting all critical waste while slowly ramping Deer Park back up again. However, we estimate the shutdown and the additional transportation costs cost us at least $3,500,000 in EBITDA in Q1. Another challenge we faced in Q1 was in our Safety Kleen Oil business. We entered 2019 with crude oil market facing considerably uncertainty after a late year crash in price of close to $30 a barrel in less than 3 months. That environment created a lot of pressure on both the pricing and demand for our base oil. Crude pricing began to recover as the quarter progressed, but we got off to a really slow start. This was compounded by extreme cold temperatures, followed by the subsequent flooding that hit the Midwest, which affected transportation and production at our East Chicago and our Breslau, Ontario plants. We are dealing with frozen waterways and rail lines, which limited our ability to barge or rail our product, followed later in the quarter by widespread flooding that again affected shipping lanes and rail lanes, and we estimate that these unusual weather cost us at least $4,000,000 to $5,000,000 of EBITDA due to the lower than expected production levels and the ability to ship our products. On the plus side, the quarter we resolved the legal matter related to a site cleanup and received $5,500,000 and we also recovered a sizable receivable that we had previously fully reserved for, resulting in a benefit of approximately $6,000,000 Turning to Slide 4, environmental service revenues were up nearly $40,000,000 from the prior year on contributions from Veolia Industrial as well as healthy organic growth. Adjusted EBITDA increased 46%, which translated to a margin improvement of 4 60 basis points. This is partly due to the 2 positive one time items I mentioned on the prior slide, both of which affected this segment. The business also drove greater profitability through pricing initiatives and increased efficiencies. We also had a favorable comp with Q1 of 2018 when we had a long unplanned shutdown at our El Dorado facility. Unfortunately, the fire adjacent to our Deer Park facility hampered our Q1 incineration utilization, which at 77% was down significantly from the prior year. Due to our focus on attracting higher value waste streams, primarily from the chemical and manufacturing sectors, we were able to raise our average price per pound by 14% year over year. Landfill tonnage in Q1 was down 32% from a year ago when we had a large spill response project, but those lower volumes were offset by a 31% increase in our average price per ton. We also generated healthy growth in Q1 within our network of treatment storage and disposal facilities, wastewater treatment plants, and recycling centers. Moving to Slide 5, Safety Kleen revenue declined by 2% in Q1 due to the uncertainty in oil prices as we entered the year, followed by the severe winter weather and subsequent flooding that limited our production and transportation. The lower revenue in Safety Kleen Oil masked a healthy performance in Safety Kleen Environmental Services, which generated growth and higher pricing. Safety Kleen's adjusted EBITDA decreased by 11% in the quarter due to lower volumes sold and base oil blended pricing. Potts washer revenues were down slightly in the quarter, while waste oil collection volumes were $54,000,000 with a charge for oil rate that was higher both sequentially and year over year. Direct lube sales accounted for 8% of total volumes sold, which is up from 5% a year ago. Total blended product sales were 28% compared to 23% a year ago and 22% in Q4. Moving to our corporate update on Slide 6. Profitable growth remains our focus in 2019. Within our disposal network, we're continuing to pursue higher value streams, project volumes and improved pricing. With Deer Park fully back online, we expect to ramp up our volumes considerably from Q1. We continue to see a favorable environment to capture new streams from the ongoing expansion in the chemical and manufacturing sectors. We have multiple initiatives underway to increase our total blended sales in 2019 with a goal of 50,000,000 gallons driven by our closed loop offering and our distributor relationships. We had good volumes in Q1 in our direct program and we plan to extend that momentum in the coming quarters. Nothing new specifically to report here today on IMO 2020 since we spoke in late February. We're continuing to look for opportunities for us to capitalize as various markets begin to respond to its impending implementation. A general consensus appears to be building that IMO 2020 is going to impact our markets in ways that should be favorable to us. We are also pursuing a broad array of cost savings initiatives again this year that we believe will offset the investments that we have made in our workforce and help us increase our margins. Turning to our capital allocation strategy on Slide 7. In 2019, we plan to again execute across all 4 categories. We're investing a bit more CapEx this year, but remain selective in our investments. We continue to evaluate a number of potential acquisition candidates, both large and small, and we'll continue to buy back shares and repay debt opportunistically based on timing and market conditions. So in summary, we see clear indications of a favorable environment for both our segments, and we anticipate a strong year of profitable growth and margin expansion. So with that, let me turn it over to Mike Battles. Mike? Thank you, Alan, and good morning, everyone. I'm getting over a bit of a cold here, so I apologize in advance, I sound a bit sketchy this morning. Turning to Slide 9 and our income statement. We started off 2019 in a positive direction with profitable growth in Q1. We increased revenue by $31,000,000 in the quarter, while growing adjusted EBITDA by more than $13,000,000 an incremental flow through of more than 40%. As Alan mentioned, there were some puts and takes in the quarter, which netted out to about $3,000,000 to $4,000,000 of adjusted EBITDA. While the net result of these items was a benefit in the quarter, the primary drivers of the baseline growth were pricing initiatives, operating efficiencies and strong results in multiple lines of business. Underscoring that point, the 60 basis point improvement in Q1 gross margins reflect favorable business mix, pricing initiatives and improved asset utilization. Normalizing for the one timers, gross margin would have been up 160 basis points year over year. Q1 SG and A expenses were down both in absolute dollars and in percentage terms. This decrease represents reflects the legal settlement and the reserve receivables we recovered in the quarter. Normalizing for these one timers, SG and A expenses would have been up in absolute dollars. That said, using the midpoint of our guidance range, for full year 2019, we still expect SG and A to be down slightly in absolute dollars. Depreciation and amortization in the quarter was up $500,000 which is entirely due to the effect of the Veolia assets acquired in late February of last year. For 2019, we which is below prior year as some existing assets become fully depreciated. Income from operations for the quarter more than doubled to $23,700,000 reflecting the improved operating margin as well as the higher revenue. On a GAAP basis, EPS was $0.02 per diluted share versus a net loss per share of $0.22 a year ago. On an adjusted basis, our EPS was $0.09 compared with a loss of $0.12 a share in Q1 of 2018. Our effective GAAP tax rate in the quarter was 86% due to our inability to recognize certain tax losses in Canada. On an adjusted basis, our tax rate in the quarter was approximately 27%. For the full year 2019, we continue to anticipate that our tax rate on an adjusted basis will be in the 28% to 31% range. Turning to the balance sheet on Slide 10. Cash and short term marketable securities totaled $224,800,000 atquarterend, down approximately $55,000,000 from year end and in line with our expectations. Q1 typically is a weaker cash generating quarter due to seasonality, higher CapEx and payment of annual bonuses. During the quarter, we also acquired a small New York based waste oil collection business for approximately $10,000,000 DSO at quarter end was 78 days, 2 days higher than year end. Though a bit disappointing, the increase represents reflects the current environment of customers stretching out payments and extended payment terms extending payment terms. Given the trends in recent quarters, we have put an executive team together to lead a complete refresh of our billing and collection process. We expect our DSO to come down in the quarters ahead. Our debt balance was $1,570,000,000 flat with year end. Our balance sheet remains strong. Our weighted average cost of debt today is about 4.8% and at quarter end we were 2.7 times levered. Turning to Slide 11, cash from operations was $29,700,000 in Q1, down from a year ago. CapEx, net of disposals, was $54,600,000 which is up about $10,000,000 from 2018. Adjusted free cash flow for the quarter was a negative $24,900,000 which reflects our higher capital spend combined with incentive comp payments in Q1. For 2019, we continue to expect net CapEx of $190,000,000 to 210,000,000 dollars which represents a 12% increase at the midpoint as a result of growth in our business, landfill cell construction and incremental capital investments to enhance our re refinery capacity. During the quarter, we repurchased 97,000 shares at an average price just over $56 per share for a total of $6,300,000 We remain committed to returning capital to our shareholders through our repurchase program. Moving to guidance on Slide 12. Based on our Q1 results and current market outlook, we raised the low end of our 2019 adjusted EBITDA range to $510,000,000 from $500,000,000 which represents the midpoint which increases the midpoint by 5,000,000 dollars The midpoint of that range represents a 7% increase from 2018 and the top end of the range equates to a 10% growth. As I mentioned in our Q4 call, we expect normal seasonality during 2019 with Q1 being our weakest quarter and profitability being higher in the second half of the year. We expect Q2 adjusted EBITDA to be up just slightly from a year ago in the low single digit range. This is mainly due to the very strong Q2 we delivered in 2018. Here's our current full year guidance full year 2019 guidance translates from a segment perspective. In Environmental Services, we now expect adjusted EBITDA to increase in the high single digit to low teens percentage in 2019. This growth will be driven by pricing, higher value waste streams in our facilities, the performance of our industrial and field service businesses and project work, as well as one time items from Q1. For Safety Kleen, we continue to anticipate adjusted EBITDA growth in the low single digit range due to growth in key lines of business in our branch network, including direct lube sales, effective spread management in Safety Kleen Oil and increased AO production in our plants. In our corporate segment, we now expect a negative adjusted EBITDA to grow by mid single digits in 2018 as increases in areas like salaries, healthcare and benefits, including 401 are mostly offset by cost saving initiatives. Based on our current year guidance and working capital assumptions, we continue to expect 2019 adjusted free cash flow in the range of $190,000,000 to 220,000,000 dollars as incremental EBITDA is partially offset by higher CapEx. In summary, the first quarter was a good start to what we believe will be another strong year for the company. We managed our way through several challenges in Q1 that were temporary in nature, including the severe weather complications early in the quarter and the unplanned Deer Park shutdown later in the quarter. Our goal remains to consistently deliver on our promises and report positive predictive results. Given the positive trends that Alan outlined, we anticipate healthy profitable growth in 2019. With that, Matt, please open up the call for questions. Great, thank you. At this time, we will be conducting a question and answer session. Our first question here is from Hamzah Mazari from Macquarie Group. Please go ahead. Hey, good morning. I was hoping if you could touch on how we should think about your market share in hazardous waste? Do you look at incinerator capacity or revenue as a percent of the market? Any thoughts on your market share, where it stands today relative to history? And then along those lines, do you view sort of the pricing environment in the space as much stronger versus history as well? Sure. Maybe I'll start by saying there's about 750,000 to 800,000 tons of commercial incineration capacity, not including the captives. The captives are somewhat equal to that. They were over significantly higher than that maybe 5, 6 years ago, but as we've seen with some of the chemical companies consolidating, we have seen some continuous shutdown of the captives. So they would probably be equal to that number, maybe even a little bit less. And we have a little over 500,000 tons capacity, Hamzah, hopefully. I think from a pricing standpoint, I think we because of the continuous investment in the MAC technology and the expansion of our plant in El Dorado, I think we've been providing some very good capacity, particularly for some of the chemical streams out there that are new that are being produced. And I think customers have recognized the amount of investment and therefore the pricing that we've been able to achieve I think has been pretty well received at this point. Great. And then just on IMO 2020, I know you said sort of no significant update there, but maybe just if you could help us think about the mechanics in terms of how it could impact your business. How should we think about it's clearly potentially a positive, but just in terms of mechanics, what should we be looking at in terms of milestones, data points, anything to gauge how that will impact your P and L? Thank you. Sure. From everything that we see, there's about 50,000,000,000 to 55,000,000,000 gallons of bunker oil, high sulfur 3 percent plus sulfur bunker oil that's going to be displaced with low sulfur oil for the majority of those ships. There's a certain percentage of ships that are installing scrubbers and will continue to be able to run the high sulfur material. But what we see is a shift in demand for low sulfur marine diesel oil, and obviously there's a lot of varieties of that types of marine diesel. But in general, VGO we think is going to move more into that low sulfur market. It's going to drive demand. It's going to probably impact pricing on that and it's probably going to either lower the manufacturing of base oil or certainly increase the pricing of base oil. And then subsequently with the bunker oil market going long with a significant decline in demand, the value of the recycled fuel oil that is not currently being re refined out there should go down and the outlets should be quite limited for that low sulfur oil. So we kind of see it at least at a 30,000 foot level Hamzah as the long market on the supply side and a much stronger market on the base oil side for both pricing and hopefully volumes. Great. Thank you. Okay. Our next question is from Tyler Brown from Raymond James. Please go ahead. Hey, good morning guys. Good morning. Hey Tyler. Hey Mike, real quick. The 4 items that you mentioned on Slide 3, is it safe to assume that none of those items were contemplated in the prior guidance? The polar the frozen freeze that we had in Chicago and that was certainly part of the number. So the other ones were not contemplated. And the legal actually take that back. Both the polar vortex and the legal settlement were both contemplated, which net to a very small number. Okay. Okay. That's helpful. Both happened in January. Okay. Okay. That's helpful. And then, Alan, you mentioned the litigation, the reserve reversal, those were in ES, and I may have missed this. But basically, the good guys were specifically in G and A, but the bad guys were in cost of ops. Is that right? That's right, Tyler. I'll take that. So if you were going to take the one timers, say that's about $8,000,000 and that would have run through cost of goods sold and the PG and E excuse me, the settlement of the receivables and the settlement of the litigation both ran through SG and A. Okay, perfect. And then on the incinerator side, so I know the chemical plant fire didn't impact your plant physically or at least I don't think it did. But do you get any sort of business interruption insurance on something like that? Or is that just a risk of doing business? We're self insured probably for the 1st 10 days, but we have presented a claim, and we certainly are early into the phase of collection on that claim. And we certainly hope to continue to help our neighbor get back up on their feet and handle some of the disposal as they need. We did provide some support on the cleanup. So it was a tough situation for our neighbor there. But we're pretty much self insured for that 1st 10 days. Okay. Okay, that's helpful. And then but big picture, you've completed all your turnarounds or at least you've taken a lot of downtime here early on. Would you expect that incinerator utilization to get back into the, call it, high 80s, low 90s for the remainder of the year? I'd like to think so. Unfortunately, even Deer Park had just come out of a major turnaround before the catastrophic fire. So the dollars so we've generated more of a bigger backlog now of waste because we were down. And quite frankly, our volumes are strong. So we would anticipate the team to catch up here and deliver real strong performance for the rest of the year. Okay. And then maybe my last one, maybe going back to IMO, and admittedly I am far from a refining guide. But from what we can tell, it sounds like there's some building concern that there won't be adequate supply of diesel or stuff that looks like diesel to really fill all that marine demand. And some of those VGOs are probably going to get diverted into the pool of marine fuel, which I guess would add VGO demand and presumably increase the price. Is that kind of the crux at least as it relates to VGO and are you hearing any of that specifically? That is it and we have not we've obviously been watching the price of diesel and we have obviously an opportunity, but also a concern because we use a lot of fuel. We're a large carrier and we really need to cover ourselves with our fuel surcharge on that. So we're really paying close attention to that pricing and it has been going up, and not just because crude oil is going up, but we think that the demand and the draw on that inventory has been also impacted. So as the months continue here, I think we're going to really watch it very, very closely and somewhat be opportunistic with what we're doing with our products. Okay. And if I follow the logic, the key to all of that is because the preponderance of base lube is basically derived from a hydro treated VGO. Is that correct? And presumably, the refiners would want to maintain a spread on their base oil. So the whole idea is rising DGO would increase base oil prices? Yes, that's our our theory. Or they would be redirected to manufacturing of low sulfur diesel. Okay, very good. Thank you. And you say you're not a refinery guy. Yes, I'm far from it, far from it, Mike. And just so you know, Tyler, that our guidance as we've adjusted it does not contemplate any IMO 2020 since really we don't really have any. Right. Okay. All right. Thanks. Our next question is from Noah Kaye from Oppenheimer. Please go ahead. Thanks very much for taking the questions. So just parsing the updated guidance, is it accurate to say that kind of organic growth outlook and other considerations for the rest of the year haven't really changed much that you're mostly just incorporating kind of the one times and the results of 1Q? Or is there something in the outlook that's changing for you a little bit? No, that's fair to say that we talked to you 60 days ago. Things look kind of as expected. We did have we are the beneficiary of some one timers. We thought it was appropriate given our forecast and where we are in the process to update our guidance by a bit. Okay, great. And then Mike, sorry to make you keep talking with a scratchy voice, but the corporate expense, that 7,000,000 year over year jump in 1Q, I'm not sure I caught in the comments, what do we attribute that to? Is this like higher comp stock performance? What drove the growth? Yes. So what happens is with our forecast coming up, it did result in kind of higher stock compensation Q1 over Q1, I think accrual this year as well as incentive compensation being up a bit. Also, as we said in the prepared remarks, 401 is higher, benefits are higher, salary is up a bit. Those are kind of market movers. And some of our cost saving issues happen a little later in the year. Got it. And then just to kind of go back to the prior question, I mean, you had obviously some volume shortfall because of Deer Park. You still beat on EBITDA. And I think we all see kind of the mix in pricing success story. So is pricing maybe even surprising you a little bit to the upside here if we continue to see this sort of robust price growth based on kind of strength of industrial activity in coming quarters, I would think that would bias towards perhaps the upside of guidance. Are you expecting any kind of deceleration in price growth? We put in an initiative last year to really look at pricing and overall margins across the entire portfolio of the business. And we have regularly been meeting weekly on that for a good year now. And I think you're seeing the results of a lot of hard work and teamwork by the sales organization and by the operating folks working together. And so I think you're seeing margin improvements because of a lot of that hard work last year, and that's going to stop flowing through this year. As you remember, we took significant price reductions, particularly in Western Canada, but with many of our oil related customers across our different lines of business. And we've really been going back to many of those customers that we provided significant discounts to and really been pushing that pricing back up to a more normalized level. Okay, great. If I could just sneak one in further, no comments the prepared remarks on PFAS this quarter. What do you make of the kind of proposed draft regulations from EPA? And then how are you thinking about this as a potential driver in ES? Yes, sure. So Noah, kind of early days. Obviously, excited about that opportunity given kind of where it is and kind of everywhere. But kind of until it gets hazardous designation, it really is not going to be a huge number for us. We certainly get a lot of asked questions about it. We get them we send a lot we have a lot of material on it. We certainly are working on it. It's not a huge number in 2019, but we're hopeful that as we look forward to 2020 beyond, that becomes a bigger and bigger part of our I don't know, Alan, do you want to add anything? I would say that our treatment units are pretty much fully utilized. That's right. And so we may invest more capital into those treatment units to expand our capabilities. And our sales pipeline for that type of opportunity hasn't been improving. So we're optimistic at this point about it, but it's early. Yes. No, the early focus is really on cleaning up drinking water, and that's where as Anshul said, our units that relate to that are all booked up. But it's when it becomes a decision point of what to do with it and are you required to get rid of it and is incineration the answer, which is where we're thinking it may be going at some point, but we're just not there yet. One point I want to mention. So we in my prepared remarks, I said we bought back shares at $56 a share. We bought it back at $55 a share. I just want to clarify that. Our next question is from Dave Manthey from Robert W. Baird. Please go ahead. Hey, good morning, everyone. Good morning. My first question along the lines of this, the pricing trends that you've been seeing, trying to understand how sustainable this is. And beyond Eldo, have you made other changes to your incineration network to allow you to target these higher value waste streams? Or is it just that there's more higher chlorinated waste streams available? Or are there other factors at play? I'm just trying to understand the sustainability of the favorable price trends you've seen lately in incineration. So we have expanded our Deer Park plant, our 3rd kiln down there. We have expanded what we can handle there. We've got permit approval to handle some other more difficult waste streams to treat than we had because we were at capacity there. So I think the team across the network continues to look at ways of debottlenecking and adding more capacity. Our Canadian incinerator had a really strong Q1, handling some very unique waste streams from some of our U. S.-based customers. And so I would say that the investments that we made last year in our incineration facility, particularly in preparation of our feeds is really starting to pay off for us as well. Okay. And you mentioned the acquisition of a small oil collection business. Just maybe you could talk about potential M and A there and then just broadly about competitive landscape. Are you seeing changes in the demand for waste oil volumes relative to the competitive environment? Nothing unordinary just yet. Our Breslau re refinery increased its permanent capacity by 10,000,000 gallons. And so drawing more material from Eastern Canada as well as from the Northeast has been an initiative of ours. And so the acquisition in upper state New York that we made was very much in line with us to maximize the volume into our Breslau Refinery. And I think we're in pretty good shape now with positioning that plant in this market. I think overall though used motor oil volumes, I think much impacted by a lot of the weather related things that we touched about earlier, And we think that's going to get much better in the second and third quarter. So seasonally, it will improve quite a bit for us. Okay, got it. Thank you very much. Thanks. Thanks, Dave. The next question is from Michael Hoffman from Stifel. Please go ahead. Hi, thank you for taking the questions. The 2Q EBITDA, you did have a very good quarter last year, but it seems the level of improvement still is muted relative to the strength in price and volume and improving mix. I'm trying to feel through a little bit of what else might be going on in 2Q 2019 versus 2018? Michael, so we if you remember, Western Canada had the kind of turnaround season that they've never had before. And so they really did hit it out of the park in multiple fronts and had what they would say themselves as a record quarter. And so everything, it's all green lights. We feel good about kind of where we are. But at the same time, that was and we don't anticipate that type of turnaround season in Q1 of 2019 in Western Canada. And as such, the goodness is offset by, let's say, the badness in that part of the world. And if you read the papers in Canada, Canada still continues to struggle. I mean, it's just the fact as far as some of the challenges they face with political pipeline and weather and so forth. So and also I think that there are some oil prices increases that were in 2018 that were kind of helped, say, the SK Oil business that we see it again here in 2019, but that's just going to keep it flat. Okay. And then when I think about the one timers, just so I'm clear, what's the dollar impact to gross margin? What was the dollar impact to SG and A and what was the dollar impact to taxes? Just so I understand what the price of those can predict. Yes, 8,000,000 to COGS, about $11,500,000 to SG and A. And so the net effect of that is $3,000,000 to 4,000,000 and tax effected at 27%. Okay. All domestic. Got it. All domestic. Okay, great. That helps. And then the down year over year in segment profits in Safety Kleen, I'm assuming that's all Clean Performance Products given the disruptions and what have you. So how much of that do you think you get back because the demand is there and we're walking into a tighter supply environment for whatever reasons, whether IMO is starting to have some impact or it's just seasonal down outages, but supply is tight, demand is good. Yes. So Michael, I would say the Q1 challenge that we faced in the SK Oil business were kind of weather related, kind of base oil pricing being very low. We had a barge frozen both at early in the year and then flooding prevented us from moving barges down the Mississippi So I So I feel like those are all in the rearview mirror. And with base oil pricing increasing, we believe they still can hit their budget. We really do. I just think that comes back. And it really and the team seems we gave them every chance in the world to kind of walk back numbers. And they said no, this is all temporary, we're fine. Okay. So you should get it back is what I'm hearing. Yes. I think we get back to it. We had an internal budget number and I think that the team is still very confident. We're confident because I feel like the plants, the refineries, the re refinery continue to run very well. And as Alan said, the permanent expansions and the acquisition of that company in New York State is going to allow us to kind of drive incremental profitability into that business. Okay. And then can you frame I know you don't give this in pennies per gallons or what have you, but can you frame the trend comparatively of what the spread looks like going into 2Q, maybe coming out of 1Q, going into 2Q relative to a year ago and also sequentially. Have you seen a widening because you were able to improve CFO and now base oil is rising? Yes. So I'd say that I'd say in Q1, obviously, the spread was contracted a bit. If you use 100 as your numbers, let's say, down 7%, 6%. And I'd say that kind of gets back plus in Q2 given the price increases we saw late March early April as well as our ability to drive kind of CFO. So I think that those I think that margin kind of that spread kind of comes back to normal levels. With Q2 last year being a great spread quarter, I think that we get all that back and be flat. Okay. And then you paid your bills really fast in the quarter. Any particular reason why you were paying your bills so fast? So at the end of the year, we did have the opportunity to kind of when Christmas and when New Year's fell in our pay cycles to hold and not have pay runs there. So that was a big win. That happened that actually happened again at the end of the year as well as incentive compensation. It was a 36 $1,000,000 number. And so that kind of came out, which is not unexpected. Okay. And then lastly for me, I think in the prepared remarks, I think Alan may have said that parts washer units or services were down. Seasonally that happens, but was it down more than you would have thought it would have been down? And what are you reading into why the I think it's probably more seasonal and we monitor that weekly and our parts washer services have been growing again. Number of machine placements is growing. So now we have sort of the other problem of needing to manufacture faster than we had forecasted. And so the team has done a good job of reversing some of the trends that took place over the last 6 months and got growth in those machines. Okay, perfect. Thanks. All right. Hey, Mayo. Thank you. This concludes the question and answer session. I'd like to turn the floor back to management for any closing comments. Okay. Thanks for joining us today. In the next week, we're participating in multiple investor events, including the McAfee Conference in Boston tomorrow, the Stifel Investor Summit in Las Vegas on Monday and the Oppenheimer Conference in New York next Wednesday. So hopefully we'll see many of you at these and other investor events. So thanks for joining us today. This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.