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Heritage-Crystal Clean Inc (NASDAQ:HCCI)
Q1 2020 Earnings Call
May 1, 2020, 10:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen and welcome to the Heritage-Crystal Clean, Inc. First Quarter 2020 Earnings Conference Call today's call is being recorded. [Operator Instructions]

Some of the comments we will make today are forward-looking statements. 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 the 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 in our annual report on Form 10-K as well as our earnings release posted on our website for a more detailed description of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website.

Also, please note that certain financial measures we may use on this call such as earnings before interest, taxes, depreciation and amortization or EBITDA or adjusted EBITDA are non-GAAP measures. Please see our website for a reconciliation 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 President and Chief Executive Officer, Mr. Brian Recatto and President & Chief Financial Officer, Mr. Mark DeVita.

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

Mr. Brian Recatto -- President and Chief Executive Officer

Thank you, Kevin. Good morning, everyone, and thank you for joining us today. First off and most importantly, I hope you and your families are healthy and staying safe during the COVID-19 crisis. On behalf of the Heritage-Crystal Clean family, I want to thank all the healthcare workers, first responders and those working in essential businesses, including our employees who continue to put their own health at risk while serving our communities. Thank you again for your selfless service. It is with mixed emotions that we begin this call today. We were so pleased with the results that our hardworking team delivered for our first quarter.

However, that positive feeling was short-lived as we entered our second quarter with the COVID-19 outbreak that rapidly spread throughout the U.S. and began to inflict both a physical and economic toll on millions of people. My comments today will address some of the impact of the pandemic in our company, along with detail in what we have done to navigate the company through these uncharted waters at the onset of this pandemic and how we're preparing to set ourselves up for the opportunities in the future. Mark will take you through the results of the first quarter. We will then open up the lines to take your questions. As Mark will detail later, the strong results of our fiscal first quarter do not reflect the adverse impact of the COVID-19 pandemic has had on our business.

Since our fiscal first quarter ended on March 21, we did not begin to feel the effects of the pandemic until the last week or two of our quarter. However, as we moved into the second quarter of fiscal 2020, we began to experience a noticeable decline in the demand for our products and services as our customers' businesses began to feel the impact of the shelter-in-place orders, which have been commonplace through the country. Shelter-in-place orders, social distancing practices and other similar actions have negatively impacted demand across diverse industries, which include many of our customers.

This has led to a decrease in activity for our customers, which eventually affects their demand for our products and services. While we are fortunate that we also serve many customers who are considered essential businesses such as automotive repair and certain manufacturers, even some of these customers are experiencing a decline in activity due to the COVID-19 outbreak. As the pandemic spread, we assembled key leaders within the company and initiated our response plan. Our initial focus was taking steps to ensure we could continue to safely serve our customers while protecting the health and safety of our employees.

To help safeguard the well-being of our employees and decrease the risk of the spread of the COVID-19 virus, we have taken the following steps: we've provided additional personal protective equipment and sanitizers; implemented staggered work schedules to increase social distancing; allowed high risk employees and other impacted individuals to work from home when possible; thoroughly cleaned and disinfected some of our facilities; temporarily closed a few facilities, none of which were closed for more than three to four business days at a time, these steps along with the prudent behavior of our employees has allowed us to limit the number of confirmed or suspected cases of COVID-19 among our employees.

Beginning near the end of the first quarter and continuing into the second quarter, we experienced situations where some of our customers have temporarily closed their businesses, while others have remained open but limited our access to their facilities, which curbed our ability to fully service those customers. Other customers that have remained opened have had a decreased need for our product and services due to the economic downturn. In addition to taking steps to ensure the safety of our employees, we also executed several actions to ensure the health of our business.

Some of these actions include but aren't limited to the following: implementation of salary reductions for all levels of management, implementation of reductions of cash compensation for members of our Board of Directors, suspension of all material and nonessential capital expenditures, suspension of mergers and acquisitions, the elimination of all nonessential travel, implementation of a hiring freeze. We also conducted vendor assessments to ensure continuity of critical supplies and materials. We extended payment terms to vendors and instituted tighter customer credit controls. We're also preparing furlough plans to augment the compensation reductions I alluded to a moment ago.

Since the outbreak of COVID-19, we have also procured cleaning and disinfectant supplies as well as PPE and other equipment to facilitate the implementation of a COVID-19 decontamination service. I would now like to spend a little time talking about the oil industry. As most of you are aware, there has been a significant drop in demand for crude oil and oil refined products due to the COVID-19 pandemic. This deflated demand scenario came on the heels of a battle for market share, putting two of the world's largest oil producing countries, Saudi Arabia and Russia. This market share battle has led to a historic oversupply of crude oil and supply demand dynamics that pushed the price of crude oil and finished products to historic lows in the past couple of weeks.

The widespread shelter-in-place orders have led to much less driving and lower levels of manufacturing activity. This in turn has led to a decrease need to replace finished lubricants such as engine or hydraulic oil. Less oil changes mean less used oil to be collected and less demand for finished lubricants. As most of you know, base oil is the main ingredient in finished lubricants, so there's been a decreased demand for our base oil as well as downward pressure on the price of our product. While there is less used oil being generated, we've been able to move from a slight pay-for-oil position during the first quarter to a significant charge-for-oil position during the second quarter. Compared to the weighted average pay-for-oil in the first quarter, our current charge-for-oil represents a net increase of approximately $0.50 per gallon.

From a rerefinery perspective, with lower demand for our base oil, we have decreased the run rate at the rerefinery to approximately 2/3 of our normal run rate. In order to take advantage of this demand weakness, we're planning on moving up the timing of our fall extended turnaround into next month. After our shutdown maintenance work is completed in May, we will determine if it is prudent to keep the refinery idle until more favorable market conditions exist.

As we move forward, we believe that we will experience a decrease in activity in both in our Environmental Services and our Oil Business segments during the second quarter of fiscal 2020 and the remainder of fiscal 2020. At this point, we're unable to determine the full extent to which the COVID-19 pandemic will impact our business and operating results. During the beginning of the second quarter, we have seen a number of services performed in our Environmental Services segment. Businesses declined between 20% and 30% in some weeks.

From an Oil Business perspective, early in the second quarter, we have seen collection volumes as much as 40% lower in certain weeks and base oil volumes sold have been down by approximately 30% compared to last year. In summary, we are undoubtedly in unprecedented times and the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial conditions and cash flows is highly uncertain and cannot be accurately predicted and is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy.

Until the uncertainty begins to clear, we will remain focused on supporting our employees and customers and regain the momentum and execution we demonstrated prior to the COVID-19 outbreak. On a positive note, we believe the strength of our balance sheet will put us in a strong position relative to most of our competitors, allowing us to capitalize on growth opportunities as the economy begins to recover.

With that, Mark will now walk us through our first quarter financial results.

Mr. Mark DeVita -- President & Chief Financial Officer

Thank you, Brian. Good morning, everybody. Before I get started, I wanted to echo Brian's comments and thank all those who have continued to risk their own health while going to work every day to treat the sick and provide the essential services we all need to continue our daily lives. As Brian mentioned, the results of our fiscal first quarter reflect only a minor impact, probably a couple of weeks of the adverse impact that the COVID-19 pandemic has had on our business due to the timing of when our first quarter ended. With that in mind, let's go over our first quarter results. Revenue was a first quarter record of $107.3 million compared to $95.8 million for the same quarter of 2019.

While net income was also a first quarter record of $5.3 million compared to a net loss of $2.5 million in the year earlier quarter. Diluted earnings per share was $0.23, another first quarter record, compared to a diluted loss per share of $0.11 in the year ago quarter. Now let's talk Environmental Services. In the first quarter, we posted record segment revenues of $77.5 million compared to $66.5 million in the first quarter of 2019. The 16.5% increase in revenue was driven primarily by growth in our field services, parts cleaning and containerized waste businesses. Our field services business accounted for 8.7 percentage points of the revenue growth for the quarter, mainly due to a large project that continued from the fourth quarter of 2019. Excluding the field services project, the first quarter organic revenue growth in the segment was 7.2%.

The growth in our parts cleaning business was due to stronger pricing, partially offset with slightly lower volume compared to the year earlier quarter. The growth in our containerized waste business was price and volume driven, resulting in a 9.1% increase compared to the first quarter of 2019. Overall same branch revenues grew approximately 10% on a year-over-year basis during the first quarter. We reached the first quarter record in Environmental Services profit before corporate selling, general and administrative expenses of $18.8 million, which compared to $14.7 million in the year ago quarter. The 28% increase in operating margin dollars from a year ago quarter is mainly driven by higher revenue and lower healthcare costs, partially offset by higher disposal and repair and maintenance costs as well as higher depreciation expense.

Our operating margin percentage came in at 24.2% compared to last year's 22.1%. Moving on to the Oil Business segment, Oil Business revenues increased 1.8% to $29.8 million compared to $29.3 million in the first quarter of fiscal 2019. The slight increase in revenue was mainly due to an increase in our selling price of base oil, partially offset by a decrease in the volume of base oil gallons sold. Profit before corporate SG&A expense in the Oil Business segment increased $5.4 million in the first quarter of 2020 compared to the first quarter of 2019 mainly due to better operating efficiency and less downtime at the rerefinery and lower third-party feedstock costs compared to last year. Oil Business segment operating margin improved to 3.1% compared to negative 15.3% during the first quarter of 2019.

Our overall corporate SG&A expense declined $1 million compared to the first quarter of 2019 and as a percentage of revenue came in at 11.6% compared to 14.1% from the year ago quarter, mainly driven by lower severance costs, professional services expense and legal fees, partially offset by higher non-management salaries and share-based compensation. The company's effective income tax rate for the first quarter of fiscal 2020 was 21.5% compared to 28.9% in the first quarter of fiscal 2019. The rate decrease is principally attributed to the opposing effect on the tax rate from equity compensation in an income quarter such as the first quarter of 2020 compared to a loss quarter like the first quarter of 2019.

We generated a record first quarter EBITDA of $12.2 million, which represents a momentous improvement over the $1 million EBITDA figure we achieved in the year ago quarter. Adjusted EBITDA for the quarter was $13.5 million. This is also a first quarter record and is over 2.5 times higher than our adjusted EBITDA of $5.1 million during the first quarter of 2019. Looking at the balance sheet, we had $56.9 million of cash on hand at the end of the quarter. We generated $10.3 million in cash flow from operations during the quarter compared to $9.2 million in the first quarter of 2019. And total debt remained steady at $29 million year-over-year. From an acquisition standpoint, early in the first quarter we purchased a noncontrolling interest in one of our subsidiaries for approximately $2.8 million.

Also at the beginning of the second quarter, we closed an acquisition of an Environmental Services business focused on field services and waste water treatment. This acquisition provides us our first waste water treatment operation in the Midwestern U.S. as well as the ability to use internal labor to perform some field services projects, albeit in the limited geography. Total consideration for this acquisition was approximately $10 million.

As I stated earlier, we ended the first quarter with approximately $57 million in cash and in a strong net cash position. Given our net cash position, we not felt the need to draw on our $65 million revolver. We believe that if we execute on the cost and capital reductions reduction measures Brian outlined earlier, we should not need to take on any additional debt in order to make it through the worst of the COVID-19 induced downturn. As our first quarter results demonstrate the true operating strength of our business, our combined operating and balance sheet strength should put us in a great position to capitalize on the opportunities we believe will be available to us as the economy recovers.

Thank you for joining us today. And with that, I will now turn the call back to Kevin to take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jim Ricchiuti with Needham & Company. Please go ahead. Your line is now open.

James Andrew Ricchiuti -- Needham & Company, LLC, Research Division -- Analyst

Hi. Good morning everyone. Thanks for taking my question. I'm wondering if you if we hello? Can you hear me?

Mr. Brian Recatto -- President and Chief Executive Officer

Yes, yes, we can hear you. How are you, Jim?

James Andrew Ricchiuti -- Needham & Company, LLC, Research Division -- Analyst

I'm sorry.

Mr. Mark DeVita -- President & Chief Financial Officer

How is it going?

James Andrew Ricchiuti -- Needham & Company, LLC, Research Division -- Analyst

I'm fine. Hopefully, you guys are well. And I'm wondering if we think about your branch network, your base network, do you have any maybe in rough percentages what level of the network has been most heavily impacted? I don't know if you have that data. I'm just trying to get a sense as to how much of an impact you're seeing.

Mr. Brian Recatto -- President and Chief Executive Officer

Yes, I'll let Mark answer the granular detail. But certainly as we look at our network, we have roughly 14 branches that are in well, we exactly have 14 branches that are in oil field areas across the country that are supporting shale plays. So they went into the first quarter being down a little bit as expected because of the activity in the oil field, but understanding that from the 2014 downturn relative to now the base was a lot higher back in those days. You had 2,000 drilling rigs working and a lot more completion crews, so certainly not seen the impact of the oil field like we did in '14. Then I'll let Mark if he wants to add any additional detail.

Mr. Mark DeVita -- President & Chief Financial Officer

No, I think as far as variation across the network, the real underlying factor here is not COVID-19. It's the more oil centric story.

Mr. Brian Recatto -- President and Chief Executive Officer

Yes.

Mr. Mark DeVita -- President & Chief Financial Officer

So if you really want to get into COVID-19, there are there is a branch in Arkansas for a few days, a branch in Tennessee, out in New York area, as you might expect that we're part of some of the very short-lived shutdown, so to speak, that we had. And a few of the branches that Brian addressed in his prepared remarks. But really, COVID-19 stands, the oil impact has really hasn't had a much greater effect in one area versus another at this point.

Mr. Brian Recatto -- President and Chief Executive Officer

Yes, I agree. It's been fairly consistent across our branch network.

James Andrew Ricchiuti -- Needham & Company, LLC, Research Division -- Analyst

Okay. And I'm wondering I mean it sounds like you're taking some cost initiatives. Is there as this has the potential to extend, is there any color you could provide on perhaps what other steps you might be considering? And again, I realize it's still a very fluid situation, but I'm just trying to get a sense as to what kind of levers you might be able to pull?

Mr. Brian Recatto -- President and Chief Executive Officer

The levers that we have, the next move would be the furlough route. And understanding our workforce, at least our service reps are already heavily impacted by a revenue decline, because different than most of our competitors, they're paid heavy commissions. So they've already experienced some erosion in that pay. But we will as the activity decreases and we lose density with our service reps and our trucks that are operating out in the field, we'll have to eliminate some routes because you lack enough density to keep them going and that will lead to furloughs. That will be a next step for us. And obviously, if this lasts longer than that, then we'll look at other potential cost reductions, which would involve potentially more people. But I doubt we go in any direction other than the furlough route.

James Andrew Ricchiuti -- Needham & Company, LLC, Research Division -- Analyst

Got it. And a final question from me is the small acquisition that you announced in the Midwest, I just wanted to make sure I'm clear. Is this also tied into this COVID cleaning service initiative as well or are they separate? I may have misinterpreted that.

Mr. Brian Recatto -- President and Chief Executive Officer

No, it's in Mark's comments. It's certainly tied in. They have field crews that do their own field services type activity. One of which is they were already in the COVID-19 business before we closed the acquisition. We've subsequently taken our field services group and procured the supplies necessary to get into that work directly with the hope that we can repurpose some of our field reps in the spirit of trying to keep everybody hold out in the field and allowing us to rebound quicker when the rebound happens, repurpose them to do COVID-19 decontamination, understanding that that wasn't our old structure.

So we had to build the safety programs. We had to procure the supplies. We had to train the people, make sure they were outfitted properly. We've done all of that and we've actually conducted some direct work ourselves and are pretty excited about it. It's a way to help augment our activity in the field and repurpose some of our very important people.

Mr. Mark DeVita -- President & Chief Financial Officer

Yes. And this might not have been the main part of your question. I'm sure Brian already just addressed that. But when we look at this deal we had already signed, we hadn't yet closed, but we had signed this before this was anything more than a Chinese story, the COVID-19 issue. So certainly while this is it's fortuitous for us, it's great. Brian described how we're leveraging the knowledge of this company to do this disinfecting with the pandemic type of cleaning work.

But we see a ton of value just in general, in the sense it's not just in field services work, the more traditional whether it's tank cleaning, remediation, ER type work. But also the fact that we have waste water treatment processing assets now. And when you look at some of the synergies and the real drivers behind the return on investments on this deal, it really lies in kind of all the things pre-COVID.

Mr. Brian Recatto -- President and Chief Executive Officer

And I think we've talked about our desire to get more into the non-hazardous treatment business. I know we talked about it during our last quarter conference call. And that's part of the reason why we acquired this company, for us to control more of our own destiny on non-regulated waste treatment.

James Andrew Ricchiuti -- Needham & Company, LLC, Research Division -- Analyst

Hi. Thanks for all the colors guys. I really appreciate it.

Operator

Our next question comes from Brian Butler with Stifel. Please go ahead. Your line is now open.

Brian Butler -- STIFEL, NICOLAUS & COMPANY, INCORPORATED -- Analyst

Hi. Good morning. Just on the oil business, just a couple of items. Do you have the number of gallons sold as well as how much RF, recycled fuel, you also sold?

Mr. Mark DeVita -- President & Chief Financial Officer

Yes, we'll dig that out. Why don't you go to your next one and I'll have it out for you in a second. All right. And then you talked about the facility being down for service in 2Q here. What date does that go down and what's the planned days? And then I'm assuming over that time period you're going to decide whether you bring it back up or not. Is that I just want to understand the timeline on that.

Mr. Brian Recatto -- President and Chief Executive Officer

That's essentially what we said in our prepared remarks. But right now, it looks like we're going to bring the plant down the night of May 10. And then we'll be down as you recall, our extended fall turnaround usually lasts 10 to 14 days. I expect this one will be a little bit longer just because of market conditions. And that's our current plan.

And we built which I think I mentioned on the last call we built a swing tank last year, which gives us some base oil storage capacity. We will go into this turnaround prepared for an extended shutdown given market conditions. And as we begin to sell off the supply of base oil, we'll bring the plant back up when needed.

Mr. Mark DeVita -- President & Chief Financial Officer

And Brian, we've sold on base oil, I think you wanted. We sold 10 1/2 or 10.5 million gallons in Q1 this year, which is which was done a couple of hundred thousand gallons from Q1 last year. And then 1.5 million that are sold, which is exactly what we sold last Q1.

Mr. Brian Recatto -- President and Chief Executive Officer

So the plan would be 14 days and possibly to extend it based on market conditions.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Okay. And then you talked about the charge-for-oil being increased net $0.50. What does your netback look like now versus a year ago versus what you saw in first quarter?

Mr. Brian Recatto -- President and Chief Executive Officer

You give him the number and I'll add some color.

Mr. Mark DeVita -- President & Chief Financial Officer

It's 40-plus cents for Q1 it was. I don't know if that's where you're going. And most all of that was improvement in price. And the base oil side, it improved even more than that. But when you look at current, that's a different story. Are you interested in kind of what we're seeing today?

Brian Butler -- STIFEL, NICOLAUS & COMPANY, INCORPORATED -- Analyst

Yes, I'd be interested in what that looked like now that oil has come down so much and charge-for-oil has gone up so much.

Mr. Brian Recatto -- President and Chief Executive Officer

Surprisingly, the spread had held up reasonably well. I mean we're off I'm not going to give the exact numbers, but let's say we're off $0.15 to $0.20 on spread. And that's been driven by our ability to get out there and charge for used motor oil. We also pushed off some third-party used motor oil, which is typically our cheaper supply. We moved into Q2 and didn't need the used motor oil because of lower base oil demand.

So not a terrible dread scenario today. We have seen a little bit of a flattening out and our ability to get a higher price than what we're charge currently for used motor oil. But we're hoping discipline continues to prevail out there, and most of our competitors are feeling the same thing we are. Now at this point, it needs to be considered a waste stream and we need to charge for it, because, as we all know, the oil industry is going to be lower for longer and we don't expect base oil pricing to rocket back up.

We do expect to see some recovery as we move into Q3. There's a lot of pent-up demand for people to jump back in their cars and go see family and take vacations. I doubt they're going to get on an airplane. So our hope is they get in their cars and we begin to see more used motor oil, more demand for base oil and pricing begins to go back up. We can't lose focus on the fact that we need to continue to charge for used motor oil as this industry is going to be productive.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Okay. And then one on the Environmental Services piece. What is the profitability in the first quarter if you took out the project? I mean was that project at materially higher margins or kind of in line?

Mr. Brian Recatto -- President and Chief Executive Officer

Well, it would have...

Mr. Mark DeVita -- President & Chief Financial Officer

It would have normally been in line. We have some issues with kind of working out some of the billing there. So to be quite honest with you, the way we conservatively booked it, it was a drag. We would have been close to 26%. I think the rough math is 25.9%. So you're talking 180 basis 170 basis points improvement over the 24.2% that we printed.

Mr. Brian Recatto -- President and Chief Executive Officer

And not inconsistent with what we said. In the last quarter I mean our cost problems have been in a lot of healthcare issues and we can't help that. I mean it's a self insurance program. We had a we got a good run here lately as we started 2020 and that helped. And that was not inconsistent with what we said last quarter.

Mr. Mark DeVita -- President & Chief Financial Officer

Yes. I mean when you compare that it's the if you want to call it an adjusted operating margin, for the lack of a better term. And we go what we normally print in Q1 in the ES segment is really, really good. And I would attribute part of that it was generally a milder winter in most of the Northeast or Northern U.S. states. Basically, we're US centric here. So that is that worth 150 basis points, 200? I mean usually we'll see a couple of hundred basis points headwinds versus other quarters. But really I mean the underlying story there is really, really good margins in the core businesses.

Mr. Brian Recatto -- President and Chief Executive Officer

And we've we've continued to work on our fleet pretty hard. I mean we've got a more robust preventive maintenance program. So that actually has increased our cost over the last few quarters, which we've talked about and we think it's the right thing for us to do to get on top of the overall maintenance of our fleet. So we think as we move deeper into the year that will begin to go away because a lot of these older trucks are being returned.

Brian Butler -- STIFEL, NICOLAUS & COMPANY, INCORPORATED -- Analyst

Okay. And just one last one on the capex. You said you're focused just on maintenance stuff. So what does that look like if you just take-if you just do maintenance capex? What level is that?

Mr. Mark DeVita -- President & Chief Financial Officer

Well, we're looking at the rest of the year to try and keep it pretty low, probably around $6 million-ish, maybe a little more. But we'll see how that goes. Obviously, Q1 was kind of baked in, some of the dollars that we will spend, we're already committed to. So hopefully, we can keep it down to around that number. We started off saying that we were going to be around where we were last year. So if we execute the way we want, hopefully we're going to save about $20 million in capex.

Brian Butler -- STIFEL, NICOLAUS & COMPANY, INCORPORATED -- Analyst

You can reduce $20 million in capex?

Mr. Mark DeVita -- President & Chief Financial Officer

Sure. Versus what I had told you a couple months ago after Q4 results.

Mr. Brian Recatto -- President and Chief Executive Officer

That's our plan currently.

Brian Butler -- STIFEL, NICOLAUS & COMPANY, INCORPORATED -- Analyst

Great. Thanks a lot.

Operator

Our next question comes from Kevin Steinke with Barrington Research. Please go ahead. Your line is now open.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Hi. Good morning everyone. You had talked about potential opportunities coming out of this environment. I guess are you referring to potential acquisition opportunities. Do opportunities become more attractive in this environment? Even though I know you've said you've suspended M&A activity for now, but coming out of this do you think there are going to be more attractive targets in the areas where you'd like to acquire?

Mr. Brian Recatto -- President and Chief Executive Officer

Yes, I'll comment first and then Mark can tag on as necessary. But certainly we see it's been a consistent thing for us. We hired a dedicated resource to pursue M&A activity. We closed a deal in Q1, which we're very excited about. We've got a very extensive pipeline of opportunities. Obviously, everybody's feeling the impact of COVID-19, so the guys that we're we're continuing to have dialog with targets. They want to postpone it and we want to postpone it, but we'll continue to maintain the dialog and get them in a position to hopefully move in 2021.

As soon as we feel comfortable that the pandemic is behind us and we've begin to see some recovery in revenue, which we think will be in Q3 Q3 will bounce off the bottom. We're going to see that back up because it's a major focus area for us and we've got the balance sheet to do it. And we continue to want to expand in our core Environmental Service offerings and we like the non-hazardous waste treatment plants. Any business that's collecting waste drums is a potential target for us. And we've got a long list and we certainly want to continue to move out west.

Mr. Mark DeVita -- President & Chief Financial Officer

In addition to the acquisition opportunities and let me reiterate that your thought process mirrors ours. I think acquisitions are the first idea when you think of that general comment we made in our prepared remarks. But really a close second is it's ties in with some other things that we've articulated in our plan, for instance, the timing of furloughs or other reductions be it temporary in our workforce. We've in some people's mind maybe we're not moving as quick as others.

But to us, having that connectivity with the employees longer is going to allow us once the economy does start to turn and we're hopeful we're not that far away from it even if it's not a V-shaped, at least some type of U-shaped recovery that we are getting even the inorganic then organically we will have the better positioned company from an employee continuity standpoint to go ahead and take advantage of those opportunities. We won't have to go out and rehire a bunch of people we've risked, do anything like that just because we were maybe a little too quick on the trigger on the front end of this. So there is a delicate balance there, but we think that could be just as powerful. Even if you really add up the dollars, it will be probably more meaningful than even some opportunistic deals.

Mr. Brian Recatto -- President and Chief Executive Officer

Kevin, you're thinking a lot like we are. We've already done some of that. I mean our employees and we do a series of town halls with our employees every other week. And we've done everything in our power to communicate with our employees and try to keep them as hold as possible. They're absolutely critical, as Mark talked about, for our organic recovery. So we have done some of that. And as revenue has declined, we have to look at furloughs, because when you look at the opportunity under the Federal CARES Act and some of the state unemployment programs, they can actually do fairly well if we position ourselves right and furlough them and continue to pay for their healthcare benefits, which we will do because we care about them and want to keep them in the queue.

And that's been our strategy. So we've delayed it. We've augmented their pay. So we've kept our workforce intact. We're going drag this out as long as we can. We're going to use the furlough route so they can stay reasonably hold during the process and they could be back there for us when the screen opens back up. And that's our game plan right now.

Mr. Mark DeVita -- President & Chief Financial Officer

And if we would have gone into this levered up or anything like that, kind of linking it back to the strong net cash position, we would be in the position to do that. And we've seen that from a lot of our competitors. So we know even the employees we furlough, even if they are negatively impacted, most of them realize already or will realize relative to the way other people are treating or handling their employees and maybe not out of desire, but just out of necessity we're going to be looking pretty good.

Operator

[Operator Instructions] Our next question comes from Gerard J. Sweeney with ROTH Capital Partners.

Gerard Sweeney -- ROTH Capital Partners -- Analyst

Hi. Good morning guys. Thanks for taking my question. Most of my I'm hanging in there just like everybody else. But most of my questions have been answered. But one just more on the opportunities side. We've always talked about or at least in recent years, shakeout of some of the smaller collectors and really moving to a charge-for-oil on a permanent basis. It's a service; it's somewhat hazardous material, et cetera. Do you think this environment maybe accelerates that process, shakes up some of the small collectors, so when we come back out on the other side, maybe the market is different than when we came back in?

Mr. Brian Recatto -- President and Chief Executive Officer

I hope you're right. That's certainly our hope. And we've seen some regional competitors shut the doors. But it's very difficult if you're not tied into a rerefinery today. Obviously, in the winter months the RFO market is a little more robust and it starts to dissipate in the summer period. You certainly had the impact of IMO 2020, which we expect because of the pandemic will not have much of an impact this year. But we still believe in the long term viability of that as it impacts the RFO market. So we're, I mean we have to have that happen. I mean base oils will be lower for longer. It's been, I've been on the Board since 2012. It's never done what we really wanted it to do.

So I mean in order for us to consistently make money in the oil business at the levels that we think justifies the capital that we've spent, we need everybody to start charging for used motor oil. We have a lot of costs associated with people and equipment to collect used motor oil and water and we need that to be a charge. I mean it happened in the cement kiln world back in the day long ago. It needs to happen here.

Gerard Sweeney -- ROTH Capital Partners -- Analyst

Got it and then actually, one last final one. This is just a small one. Disposal costs have come down. I think that was a little bit of a headwind last year. I believe it was maybe partly vendor related. Is that reasonably well-positioned on a go forward basis? Should lower cost actually just carry over is what I'm trying to say.

Mr. Brian Recatto -- President and Chief Executive Officer

Yes, we had one vendor problem last year early. A vendor went down for unscheduled maintenance. But overall, our vendor arrangements are very solid right now. Obviously, it was coming into 2020 a pretty bullish economic cycle. So like us, everybody got their price increase, cost of living adjustments, and we saw some of that coming into 2020.

But overall, we're pleased with our vendor performance and pleased with our margins, pleased that our price increase was able to stick so no issues on the vendor front. Obviously, as we evolve as a company, we're trying to develop more of our own internal capabilities, mainly on the nonrecur end, because we think it's very important for us as we continue to grow in the industrial marketplace and with our retail customers that we control our own destiny, and that's what we're doing.

Operator

[Operator Closing Remarks]

Mr. Brian Recatto -- President and Chief Executive Officer

Thank you.

Mr. Mark DeVita -- President & Chief Financial Officer

Thank you.

Duration: 41 minutes

Call participants:

Mr. Brian Recatto -- President and Chief Executive Officer

Mr. Mark DeVita -- President & Chief Financial Officer

James Andrew Ricchiuti -- Needham & Company, LLC, Research Division -- Analyst

Brian Butler -- STIFEL, NICOLAUS & COMPANY, INCORPORATED -- Analyst

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Gerard Sweeney -- ROTH Capital Partners -- Analyst

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