My guest on the show today is Brian Recatto. Brian is the CEO of Heritage-Crystal Clean, a 670 million dollar market cap company that provides cleaning and waste removal services to customers in the US. HCCI is one of the key competitors to Clean Harbors, a company whose CEO we also interviewed on this show. Specifically, Heritage operates in 2 segments: an Environmental Service division that offers parts cleaning and containerized waste management services; and an Oil Business segment that collects, re-refines and then re-sells used motor oil.
Brian took over the CEO role in 2017 and, aside from a brief COVID-related speed bump in 2020, he has overseen consistently improving results and a higher stock price. COVID presented—and continues to present—a number of challenges for Heritage but the company’s strong balance sheet and consistent Environmental Services businesses have allowed it to weather the storm. With that as a backdrop, Brian and I had a great discussion about:
- How the company has navigated the challenging customer disruptions over the last 18 months;
- The ups and downs associated with owning and operating an oil re-refinery;
- The future of hazardous waste regulation and why HCCI is one of the good guys when it comes to environmental matters;
- The benefits of operating dense route networks and how Heritage defends its market position; and
- How the company approaches M&A and the prospect of adding a third leg to the company’s stool
This episode of Compounders: The Anatomy of a Multibagger is sponsored by Tegus, an innovative and disruptive company that is changing the way professional investors work. For more information, please visit: https://www.tegus.co/
Time stamps:
- 1:18 Introduction
- 3:00 Navigating COVID-19 as a waste services company
- 8:52 Why Heritage highlights individual employees on its investor relations website
- 10:45 Creating lines of communication between senior management and field employees
- 11:56 How the rise of electric vehicles will impact HCCI
- 16:19 Evolving a waste services business as customers become more ESG-focused
- 18:13 How to tell what is a great ESG story
- 21:37 Growing an underappreciated parts washing business
- 23:34 Approaching win-win relationships with regulators
- 27:25 The logic behind creating a more vertically integrated business model
- 31:27 IMO 2020 and its significant impacts on Heritage
- 34:10 Balancing competition in new and foothold markets
- 36:57 The route density network effect
- 38:43 Additional monetization opportunities at Heritage
- 40:39 Helping frontline employees become effective salespeople
- 43:06 The challenges of hiring and retaining people within a tight labor market
- 45:50 Assessing the potential of automation in a services business
- 47:06 Managing the volatility of the re-refinery business
- 51:35 Setting fair goals for employees who work in volatile business lines
- 52:56 Family influence at Heritage: appealing or concerning?
- 55:59 Balancing short-term pain for long-term gain
- 57:39 Looking back at that last 4 years as CEO of Heritage
- 58:50 Bolt-on and tuck-in acquisition opportunities
- 1:01:17 Filling in the West Coast coverage gaps at Heritage
- 1:03:18 The benefits of scale in the waste services industry
- 1:05:17 The biggest changes experienced over the last 15 years
- 1:06:45 The most misunderstood aspects of Heritage-Crystal Clean
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All opinions expressed by your hosts and the podcast guests are solely their own opinions and do not reflect the opinion of Cove Street Capital or any affiliates. This podcast is for informational purposes only, it is not investment advice, and should not be relied upon for any investment decisions. We are not recommending the purchase or sale of any securities. The hosts and guests may be beneficial owners of the securities discussed. You should not assume that the securities discussed are or will be profitable.
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