Q3 2019 Earnings Call
Greetings and welcome to the clean harbors Inc. third quarter 2019 conference call at this time, all participants really listen only mode.
Sure that's recession will follow the formal presentation.
Do you watch require operator assistance during the conference. Please press Star Zero Wonder telephone keypad. As a reminder, this conference is being recorded it's now my pleasure to introduce your host Michael Macdonald General Counsel for Clean Harbors Inc. Please go ahead Sir.
Thank you Kevin and good morning, everyone with me on todays call It Chairman, President and Chief Executive Officer, Allen S. Mckim.
He VP 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're 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 October Thirtyth 2019.
Information on potential factors Arista could affect our actual results of operations is inclusion now resi. She filings the company undertakes no obligation to revise or publicly released the results of any revision to the statements made in today's call. Other then 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.
It's Michael Good morning, everyone. Thank you for joining us today.
Starting on slide three Q3 was another strong quarter for us as we drove high value waste streams into our network and achieve growth across many of our service businesses.
It was our eighth consecutive quarter of profitable growth.
We delivered nice revenue growth of 6% in the quarter.
And grew adjusted EBITDA by 11% on the strength of our business mix pricing and higher efficiencies.
Environmental services was the primary driver behind our strong performance and safety Kleen contributed to our profitable growth.
Turning to our segment results beginning with environmental services on slide four.
Revenues were up 8% in Q3 due to growth in our volumes, particularly incineration.
The mix of waste that we received.
And the strong growth across multiple service businesses, such as field services.
Adjusted EBITDA increased 19%.
It's translated to a margin improvement of 180 basis points and put the segment above 20% for the second consecutive quarter.
That level of margin and profitability reflects the mix and volumes we saw in the quarter supported by ongoing efficiencies at our facilities [noise].
As I mentioned last quarter. We also continue to realize the benefits of the regional structure that we instituted in 2018.
[laughter] incineration utilization came in at 92% up considerably from a year ago.
The plants ran well in the quarter and that help limit our turnaround days, which we had expected to be low due to turnarounds that were shifted to the second quarter.
Our average revenue per pound for incineration increased approximately 12% from a year ago.
Primarily as a result of the ongoing shift to higher value waste streams, such as high halogenated compounds.
Landfill tonnage was up 6% as based business was study and supported by several projects.
Regenerator about 8 million in emergency response revenue.
Resulting from two on water fuel spills and the clean up a wildlife reserve devastated by Hurricane Harvey.
Moving to slide five.
Safety Kleen revenue was up 2% in Q3 due to the growth in the branches and pricing of our core services.
Which more than offset a lower spread and the safety kleen oil due to base oil pricing.
Adjusted EBITDA also grew 2% with margin increasing 20 basis points.
Pasha services were up from a year ago.
Waste oil collection volumes were strong at 63 million gallons.
With a charge for oil rate that was slightly higher than a year ago.
Direct group sales accounted for 8% of our total volumes.
Oh from 6% a year ago.
Total blended product sales were 27% up from 25% a year ago.
Excuse me.
Turning to our strategic update on slide six.
As we conclude 2019, we remain on track for profitable strong profitable full year growth.
And our disposal network, we are continuing to extend our pricing and mix improvements as well as pursue project volume.
Blended sales have fallen short of our targets. This year both in terms of our close loop in our distributor sales are closed loop offering continues to grow and although we have surpassed 30000 unique customers. The pace is still below where we wanted it to be.
We brought in some new leadership are developing some additional plans to reinvigorate both our closed loop and distributor sales.
Into 2020 and beyond.
The safety Kleen team as closely monitoring IMO 2020.
And opportunities to take advantage of this expected shifts the change will cause end market dynamics.
We've seen a few concrete changes in the market to date, but indications are that we should be able to gather more volumes of waste oil at favorable rates in future quarters.
I know, there's considerable wall street interest in PFS and what it could mean to US but is currently hung up with competing legislation in Washington.
Customer inquiries about our capabilities are climbing well you don't expect any material effect until the grid lock in Congress on this issue is ironed out.
One area I wanted to touch on briefly today is sustainability.
Taking care of the environment, taking a sustainable approach to business is something that is central to our DNA here a clean harbors.
Whatever it is recycling waste oil or solvents or paints or precious metals, our business model since our founding has always been constructed around we use one possible or appropriate disposable normal volume Oh excuse me when all value has been extracted.
With the closed loop offering and safety Kleen, we're pursuing maximum sustainability of the waste all we collect we're literally selling customers back their own very own oil.
Even within our disposal network, our destruction of Caesars, avoiding millions of metric tons of carbon dioxide emissions.
Within our fleet, we've established for refurbishment shops, there extending the lives of our vehicles and more than 80% of the parts we use of recycled.
Well then field services, we respond to approximately 6000 emergency response as each year, where someone else's released harmful pollutants or chemicals entity environment.
Sustainability is truly a core component of our brand.
And we are still in the early innings of telling our full story to customers our partners employees and investors, but it's something we are focused on as an organization are making it a priority for 2020 and beyond.
Turning to our capital allocation strategy on slide seven we continue to execute on all four categories. In 2019, we're on track for our net Capex targets. This year as we focus on internal capital on the highest levels or return.
We've added two successful bolt on acquisitions this year to support both segments of our business.
We also recently divested a small non core liquids hauling business in Western Canada.
Which is consistent with our strategy pruning the portfolio in areas, where we believe we are not the best natural owner.
We've also bought back a normal amount of shares. This year, we continue evaluate additional repurchases along with repaying debt opportunistically based on timing and market conditions.
So in summary, we entered the fourth quarter of 2019 with strong momentum, we anticipate achieving solid profitable growth in Q4, while we see some small pockets of industry specific weakness the overall outlook for our markets remains very positive.
We remain on track to deliver a record level of annual adjusted EBITDA and adjusted free cash flow and 29 team.
With that let me turn it over to Mike battles Mike.
Thank you Alan and good morning, everyone.
Turning to slide nine in your income statement as Alan highlighted we delivered good results across all our key metrics in Q3.
We increased revenue by 48.5 billion, while growing adjusted EBITDA by 15.3 million, an incremental margin pull through of more than 30%.
This quarter saw we saw good growth supported by higher pricing and operational efficiencies.
It goes members that we saw 20 basis point improvement in Q3 from a year ago due to better asset utilization business mix and pricing.
X gene expenses were up 1.1 million absolute dollars, but improved 70 basis points in percentage terms. This improvement was driven by a series of cost saving initiatives as well as efficiencies. It achieved try seem to clean customer care center, which we invested in over the past two years.
Using the midpoint of our guidance range for the full year 2019, we now expect SGN aid to be down in absolute dollars with an improvement on a percentage basis of 80 90 basis points versus 2018.
Depreciation and amortization increased slightly to 73.8 million, which reflects assets, we've added from tuck in acquisitions and capital spending.
For 2019, we now expect depreciation and amortization in the range of 295 to 300 million, which is essentially flat with prior year.
Income from operations increased 22% to 80.4 million, reflecting the combination of our revenue growth and improved margins.
On a GAAP basis, EPS was 65 cents versus 55 cents a year ago.
Adjusted EPS was 72 cents.
GAAP tax rate was 32.8% in the quarter.
Adjusted basis, our tax rate for Q3 was 32.5% for.
For the full year 2019, we anticipate that our tax rate on an adjusted basis will be the 30% to 31% range.
Turning to the balance sheet slide 10, cash and short term marketable securities at quarter end totaled 329.1 million up nearly 70 million from the mid year and inline with our expectations.
DSL at quarter end was 74 days consistent with the end of Q2 and a two day improvement from year end.
We expect it a bit more progress this quarter given the programs, we havent place and initiatives underway.
You sell remains a primary focus of our team.
Our debt balance was 1.56 billion down 10 million from year end.
Our weighted average cost of debt today is 4.6% down slightly from prior year.
We feel good about our balance sheet as it stands today.
Using a trailing 12 month adjusted EBITDA and our current cash balance we were 2.3 times levered at the end of cut at the end of Q3 on a net debt basis.
Turning to slide 11.
Cash from operations in Q3 was up 24% to 146.2 million.
Capex net of disposals was 54.6 million up just 1.5 million from a year ago.
Adjusted free cash flow was up 42% for the quarter at 91.6 million.
This followed a strong Q2 and keeps us on track from an annual perspective.
For 2019, we continue to expect net capex of 190 to 210 million.
Most likely will be at or slightly above the midpoint of 200 million as we focus on investments around safety and operational efficiencies across our network.
During the quarter, we repurchased 68000 shares at an average price of $75 in 25 cents a share for a total of 5.1 million.
Moving to guidance on slide 12.
Based on our year end performance and current market outlook, we raised the lower end of our 2019 adjusted EBITDA guidance by 10 million to a range of 530 to 550 million.
This represents a midpoint increase of 5 million from our prior range and the new midpoint of 540 million would represent a year over year growth of 10%.
Looking ahead, we continue to expect adjusted EBITDA in Q4 to grow in the mid to high single digit range compared with Q4 of 2018.
Here's our full here's our current full year 2019 guidance translate from SMB segment perspective.
In environmental services, we now expect adjusted EBITDA to increase it.
In the low to mid teens percentage in 2019.
This growth will continue to be driven by higher value waste streams performance in our facilities projects and increases in various service businesses across multiple regions.
For safety Kleen, we now anticipate adjusted EBITDA growth in the low single digits. We expect the year will be along the lines and what we saw this quarter with profitability growth in the SK branches offsetting a year over year decline in SK oil.
And our corporate segment, we now expect negative adjusted EBITDA to grow by mid single digits from 2018.
Due to increases in benefits as we continue to invest in our workforce.
We are reiterating our adjusted free cash flow guidance and continue to expect to finish the year in the range of 200 to 220 million.
And now mentioned, we're increasing our focus on sustainability across many areas, including our workforce. We're safety remains our top priority. The top 60 senior leaders in the company along with the entire operational leadership has safety as part of their incentive compensation to ensure that we keep our people space. We're also instituting a new corporate wellness pro.
In 2020 to enhance the well being of our people our most important asset.
In conclusion Q3 was a strong core another strong quarter for clean harbors led by our disposal network combined with good contributions from all our regions in North America.
Margin performance and cash flow generation were excellent in the quarter, our near term growth prospects continue to look promising and we anticipate a solid conclusion to the year.
We are aware of macroeconomic uncertainties that exist, we've not seen any meaningful slowdown in our core lines of business.
We are maintaining a positive outlook and we continue to see favorable trends within our key lines of business.
I'd like as I'd like to reinforce each quarter. Our goal remains to consistently report predictable results.
With that Kevin Please open up the call for questions.
Thank you will now be conducting your question and answer session.
You got to be placing the question could you. Please press star one of your telephone keypad a confirmation Tony will indicate your line is in the question Q You Me Press Star Q, if you'd like to remove your question from the Q for participants using speaker equipment and may be necessary to pick up or handset before pressing star one.
One moment, please what we pull for questions.
Our first question today is coming from Noah Kaye from Oppenheimer. Your line is now live.
Hi, Thanks, and good morning.
Just a couple from me to start you mentioned at the outset, Alan that the PFS opportunity in Ghana, Gridlock in Washington, being a gating factor there. It does look like Theres been a couple of developments recently, we saw.
You're participating in a program with Washington State on Incinerating firefighting foams. So that's the first question is just.
From a technical perspective are all of your incinerators.
Or the majority permitted to destroy PFS Offences have you proven to the regulators that incineration is fully effective at the disposal method.
Would you would it require any capex into the plants to deal with the fast just your thoughts there.
We we do see.
It's still not has right. So we're still waiting to that gets and determinations from the Feds and then ultimately how the state's going to administer a programs.
But we also know that we have a strong.
Pipeline of opportunities a lot of them are predominantly to deal with groundwater and sit you kind of treatment systems and we are essentially booked out with our ER our treatment.
Units and we're looking at next year to invest a lot more and our.
Our treatment plants, so that we could.
Get more and more of those rental units out not only to support our customers directly but also the support a number of our.
Partners that we would like some of the technology that we have particularly again on the on the ground water.
I think it's too soon to tell you know from an incineration standpoint, just which ones we would be a earmarking as the regulations come forward here, but.
Obviously, the rotary killings would be the most likely a sites that we have and we have.
Several of our plants are the rotary, killing technology, which would be most appropriate.
Okay, but from a permit perspective, there is no gating issue there.
Yeah I know there. This is Jim there are no permits yet because Allen said that still non has so until.
The latest.
No one ever.
Yes, and I think we also saw that there may be waste streams coming into your Sarnia landfill just as some landfills and stayed in Michigan. For example are refusing to take PFS ways.
So I'm just a you know any thoughts there on you know maybe understanding how the design standards and the operating requirements year landfill.
Maybe offer a bit more control over PFS.
Hi, just understanding how that happened.
Our Sarnia landfill did go through a pretty exhaustive permit expansion that that took about six years and was was issued to US a couple of years ago until that gave us a lot more capacity and meeting meeting a new design standards certainly a was part of that and we also put in the thermal treatment unit there we havent.
Incineration, a center greater operating at that site as well, but it's only liquids only so that wouldn't be one that would be used for any solid contaminated material, but that particularly infill has got some real a unique capabilities through it with that permit expansion we have.
<unk> okay.
You know and then just.
Following up on your comments on IMO 2020.
Maybe kind of take us through a little bit how your thought process right. Now you know what impact do you expect us to have on new remote demand how likely is it that you'll be able to put through a price increase as we exit the year just your thoughts on how the overall environment is shaped.
Relative to your expectations and opportunities for for pricing.
Yes, I think what we've seen here as.
No. The they used motor oil that wasn't being we refined through companies like us was going into the utility market predominantly and much of that market has driven up you know dried up.
A lot of the utility market now is being served with this much lower cost high sulfur fuel oil where they have the scrubbers and they have the ability to take this material.
Because of the significant discount that you're seeing now with.
Hi, so for.
Heavy number six oil.
That that is really what's been disrupting I believe they used motor oil market and so the market is somewhat long right now and Oh, we we just recently did put out a a price increase because of that and and we know that many collectors who are not in the re refining side of the.
The business are going to have some real difficulties getting rid of their oil a beat because of the whole shifts going on.
With the high so how do you sell for market. So.
We feel very good about our position in being able to service our customers or be able to handle more used motor oil.
We're expanding our California facility right now and adding more biggio capability. There. The biggio market is really strong right now so we're not going to be making them more base oil just yet, but we are making and converting more a used motor oil at that plant. So I I think we're feeling very good about the used motor oil side.
Well, we haven't seen yet is any of the impact of swinging some of the you know the material over into the diesel side or the marine diesel side would subsequently may have a.
Positive impacts on the base oil market, we haven't seen that yet.
Yeah, I know a one point I want to add to Alan Alan's comments is that although we didn't do a price increase and I think that were as Alan said, we're seeing kind of signs of life.
Not much of an impact in Q4, I think that it does take time to kind of roll through the system and so I'm not anticipating that being a big lift for Q4 per se yes.
Thank you you anticipated my questions I really there's a benefit to 2020 that right.
That's right that right. Okay. Thanks, I'll turn it over yeah. Okay.
Thank you. Our next question is coming from Tyler Brown from Raymond James Your line is now live.
Hey, good morning, guys Arnie.
Hey, Alan I, just want to unpack the comments around seen some industry specific weakness on the macro Frank I'm, just curious what specific industries or end markets that you were talking about there.
Yeah, I, just think you know sort of broadly thinking about what you hear about transportation and manufacturing being a it was a little bit soft I think dental production being down yeah industrial production was down but you know quite frankly, not specific to a particular company or a.
Our customer base per se, but thats, just sort of the noise that we hear out there that there are some.
Slowdowns.
Maybe somebody had to do with the gym strike. We don't know you know how that might come to work its way back we certainly saw a little bit of that in the and the blended all market.
So there was some impact by that but you know it was just a reference that you know there has been comments, particularly about those three particularly areas that you know are important markets for us.
Sure. Okay, but then you kind of were quick to note that you do have a healthy backlog into disposal network and whenever you're talking about that is that more on the incineration side or the the backlog in the landfill project work.
Yeah, I think you know this was a good quarter for our landfills, we do have a big backlog I think our deferred has grown.
Quite a bit so that so you know that sort of another sign that we've got a lot of material. There. Mike do you have yeah I meant to data. It's over 11 million deferred revenue has gone up 11 million since since year end and so I feel like Alan's comments or we're not immune to macroeconomic factors, but we see nothing today as we look at the near term.
Both our pipeline in Q4 and in early 2020, it we don't see anything yet, but again you know we know that you know we're not immune to it that's going to alan's point, whether it be in manufacturing, whether it be and transportation, whether it be in utilities and that's it. Some of these factors are impacting them and im sure, though and that does we just don't see today, but I think because we finished the year a strong.
As we go into our seasonally you know slower.
Quarter, you know, we've got a heavy backlog of of material. That's right. We also have I think a very strong pipeline you know in a coming out of our sales organization for both projects as well as you know ongoing waste stream. So I think we've we haven't yet seen any real impact yet I guess, what we're saying.
Okay. So it feels that the backlog is good got you know waste in the pipe so to speak the incineration pricing continues to have momentum I think can correct me if I'm wrong, but you have fairly easy comps in the first half from from Exalogic incident.
So I guess my question why Wouldnt, yet maybe grow mid to high single digits next year, just outside at the macro really fallen apart.
Yes, Tyler you know.
We're going through our budget process kind of as we speak right now and obviously, we're excited about the progress we've made in 2000.
18 and into that 19, and I don't know <unk> and I'm hopeful that when we get through that process that that that that process and we can go on to do that with our board and get their sign out we'll be able to come back and kinda give you got some indication in some thoughts around around 2020 that being said you know as Alan said that lot of lot of good indicators and we got them with a strong backlog in as seasonally weak.
Quarters, I'm I'm optimistic, but I think that it's important that we kind of respect this process and we've been we've been good at doing that and I think we'll continue to do that.
Okay I had to try I appreciate that just real quickly.
Oh conceptual question Alan about safety Kleen. So am I right is that about two thirds of the EBITDA is really how the branch business, maybe the other third kinda, making money on the oil side is that is that conceptually right I know that that branch business is very sticky, but it's it's probably slow.
<unk>.
Whereas you know that other third of the EBITDA that weren't business, that's where you're going to see influence from IMO and maybe close loop is that the right way to think about it yes.
Okay, Okay, well mission or how that and then my last year.
So Mike I think the second or third EBITDA raised this year. So is your incentive comp accrual tracking over 100% here in 2019.
Tyler So it is a second I think I don't think we raise guidance in okay. On I think we did it in Q2, we did again this morning.
Yeah, I think that the other challenges that our accruals are obviously book toward what the but the bonuses are every closer to those up every quarter. We're very diligent that being said we have some very aggressive safety goals and we're running although we are doing better than last year, we're not kind of getting to the safety goals right now and as such that accrual was probably a little lower.
Now where it was last year, but yes.
Did you can imagine base business doing well, we're really good really close to budget melodic lot and a lot of good bars to being a crude just to be fair, let's safety is although a great improvement from prior year, and we said internally set top expertise, we had like the Dayton for ourselves and that were falling a little short of the at the moment.
Okay, Alright, I appreciate it thanks.
No problem.
Thank you. My next question is coming from Michael Hoffman from Stifel. Your line is now live.
Thanks, Good morning, Allen My Jim.
Hi, Ken let me I want to knock something on the head on P. fast you're not going to do drinking water, if whatever you're going to do is gonna be on remediation groundwater steer clear of drink water drinking water is probably the bigger near term play, but theres, a long term trend potentially and remediation on piece, yes, exactly where we may support the large.
Sure he and see companies out there that need that some of the technology and you know units. So we have but absolutely that you're right, okay and so Alan you've been at this long time and I give you credit for often saying where the PUC goes there is this an especially this or PCB [laughter].
[laughter] opportunity.
I think it's probably more of a PCB a you know, but it's going to take you know the regulatory driver to make it make it that way.
And so I think Oh, obviously that is the difficulty right now is to try to understand whether we can.
Whether something we will get done in Washington, and not so your view is you need a fed move not just the states because the states or <unk> or a front in front of the feds at this point yeah.
Yeah, Yeah, I think that's you know typically you know where the funding comes from and and how the the states can get more money and make sure that you know all the states are aligned I think that's the best place to that money comes from out normally Michael it's funny.
Okay, and then you've touched on the Unbilled. They are so that the there is this positive trend that's been a happening each quarter and there's nothing to suggest that that trends changing either when you try and correlate it to a macro.
Right No I think when we look at you know the real details behind our agings and where all the.
Components of deals. So are you know our our our buckets of receivable in pretty good shape, we just need to do a better job of getting our builds out the door, a little bit faster, which which has the most impact on dsos right now.
Okay and then.
The tough question, but that the last cycle you clean harbors had some challenges being out to look forward and predict the business as a compressed what have you done in the business model to improve the ability to predict <unk> 'cause it and there's a slowdown is inevitable business up cycles. So what have you done to improve that predictability. This time.
I think our exposure and oil and gas is relatively small today you know EBIT does in the 15 $20 million range versus $150 million range. So you know we have divested a number of businesses and sold off a lot of assets in that space.
As we.
Saw that impact, particularly in western Canada, with a huge discounted crude oil and the the reductions in the amount of plants that were being proposed and built a and so I think our exposure. There is relatively low I also think that we've put in place or some.
I think very good tools.
To manage the spread in the business, particularly in the safety Kleen business I mean, when you think about you know the EBITDA, we got when we bought it in 2012, where we are going to end up this year, we essentially doubled EBITDA that business <unk> you know outside of maybe some corporate allocation that you you could argue about but you know we still believe that there is.
Good margin improvements that could be made in the safety kleen business with other initiatives you know, we sort of at that seventh inning.
As compared to where I've spoken before but I do think that managing the spread is probably the thing that will help us as we hit maybe a you know some type of downturn in the crude oil values, let's say if it went down to $20 again.
I think we're in a good position.
Okay, and then lastly on that.
Just to be clear Mike you you came into your thinking you would you know flat would be good from the S. K O contribution to EBITDA, maybe it's slightly down but SK. He was continuing to improve average branch revenues good solid organic growth, there, which is driving operating leverage and so that's why it's up that that's still the right way to think about.
Got it and then IMO helps next year or if crude oil goes up higher than base oil prices go up anyway, but that's how to think about it.
Yeah, No I think thats it thats exactly how you I tell you how you look at it I think that do you.
I think that we had tough start you know as you remember with some of that some of the flooding and frozen barges and so forth. We had a tough start to the year and that kind of a lot of pressure on the scale oil business I think that I totally agree with you that growth is the growth. This year is coming from that from the branch network and ER and better price.
Your pricing and leveraging that business right because it's looking like it's mid single digits or better we're s. kao might be flat or down and there is your low single digit blended yes, yes, okay, alright, and then okay.
Alright, and then I just want make sure I heard you correctly. Your you are biased thing that free cash flow midpoint or higher so you didn't change the guidance there, but your acknowledging the EBITDA trend would lead you to midpoint or higher yeah, I think that Michael the challenge around cash flows it's very difficult to predict down the stretch working capital is as volatile as far as when we get paid.
Great and and so forth and what we all and when we all it. So I think that we were hesitant to kinda rates. Although we did raise EBITDA guidance I feel very good about that out as hesitant to raise gaslog I'd just because there are a lot of ambiguity beyond my control that died that I want to make sure that consistently exceed expectations.
Got it thank you very much see on Sunday.
Okay. Thanks, Michael. Thank you. My next question is coming from David Manthey from Baird. Your line is alive.
Yeah. Thank you good morning, everyone.
Good morning.
First off yes, I think you said you ended the third quarter net charge for oil position did you say that you further raise those charges at the end of the quarter I'd, just just so I heard that right.
Yes, yes, yes, yes, David we ended the quarter up a little bit and we have put out a price increase in play subsequent to quarter end. This actually just month, yes. Subsequent subsequent in the quarter.
Okay, so upward bias there.
HCC when they reported they sort of had an expectation of Choppiness in you are more markets in the fourth quarter right. I guess I contrast that Alan you sounded very confident that things were going to to get better from here and I'm. Just wondering what gives you that level of confidence relative to some of the ebbs and flows are the supply and demand in these markets.
As we move towards IMO 2020.
Well just really just a feedback that we're hearing from you know our team in the in the oil side of our business where.
You know purchasers of third party oil or or swaps that are going on or.
Traders that are trading and you omo basically shut it off from any further sales I mean, we we've seen some of the bigger trading from say look at the.
Our utility market is closed we don't have an outlet we have product.
Really sitting stranded in some cases, and we're not going to be taking on anymore. So now that's particularly on the two coast you obviously, the eastern East Coast West Coast, or where you really see that and maybe you know heritage being in Annapolis, maybe doesn't get you know as much color around that as we see it but where we're pulling oil from all over north.
America, and and we get a good idea of you know sort of where inventory levels are and what outlets are already so I feel pretty confident about it.
Okay that sounds good.
And a further on.
Pricing beyond the charge for oil and you also gave us incinerator pricing where are you able to achieve pricing and ended the other lines of business the industrial environmental services parts washing.
I would say on the industrial side, particularly after the Veolia acquisition, we've really done some deep dive in a well above the top 30 or 40 contracts and in some cases, we have.
Lost some of that business as we were more aggressive in our pricing strategies there to try to get more of a reasonable margin for some of the business that we acquired so I think overall industrial will be down because of some of those initiatives, but we also think that in other cases, where we have you know sort of a nice bundled service approach to some of these.
Customers, where we're getting their waste streams were doing their industrial work, we're doing their emergency response work.
What we see some opportunities for price improvement knows and those scenarios.
So, but I I would say just pricing in general and industrial has been a real focus of ours.
Okay sounds good. Thank you very much guys. Okay.
Thanks, Tim.
Thank you. My next question is coming from Jim Ricchiuti from Needham and company. Your line is now live.
Thanks. Good morning question on Nash DNA I, you seem to be doing a nice job on that score and I know your early in the process and thinking about.
2020, but I'm just wondering is there is there anything you can say a as it relates to a ash DNA expense as a percent of revenues going forward is there much more they you can get do you think from that area.
Yeah, Jim So you know a.
We're not going to talk about 2020 in as part of this process, but it but we didn't see anything unusual this year.
We didn't do some you know like that the team is always trying to think about not just the quarter in front of us, but next year in the year. After some of that moves we made in 2018 and 17 of consolidating operations are starting to pay off this year and there's no reason to think that we're not going to think that have some more creative ideas and in 2020 or so you can it get better.
Hopeful, but I mean, I think that the team is always thinking about you know kind of how to take out how to consolidate locations how to do things more efficiently at a better systems in place. All those things are to drive can ask DNA X gene and substantially all those things kind of allow you to get that better leverage and and the team to excellent job of doing that.
Led by Allen and the whole organization focused on on that exactly.
Got it and just turning to the yes out of the business you noted a couple of areas of.
Pockets of weakness, but it sounds like what you're seeing is actually fairly fairly healthy demand I'm wondering are there any parts of the market, where you're seeing unusual strength better momentum that you would have expected.
[noise] nothing that I can Mike I'm not sure. If you have anything that comes to mind I mean, we the only chemical industry is really strong yes. That's right say Jim is that you know that the chemical investments being made especially in the Midwest in the Gulf continues to kind of pay dividends for us I mean, we were just and we have that we have the network we have the teams in place.
There has been it's been a winner for us but year to I think that we'll continue to be a winner for us prospectively I, just think that that type investment as being made billions and billions of dollars being invested in in the region in a low price natural gas and to build the labor I think it really that I helpful. Help it helpful for us in that that sees no sign of slowing down in my opinion.
And then final question for me I'm, just wondering if there you could elaborate at all on just where you are in terms of reinvigorating. The the sales on the close loop side. It sounds like you've made some changes and I'm wondering what what we might anticipate near term from some of the internal changes you've been making.
So I'll start now and feel free to jump in there.
No. We we are up over 40% in the direct Lou kind of year over year now that's not our own internal numbers that we have higher expectation for that we've made a lot of investments in people and processes. We're hopeful that there's further progress, but I think that I think kinda on a on the just taking a step back and looking at it from from here at 30000 customers.
Good good stick rate good growth that every month with more about volume being in the team really excited about it I'm hopeful that continues to go is that going to be you know.
That does a needle mover in 2020, I hope so I'm not sure it will or not but I do I am excited about the team is very exciting I'm very excited about the growth that they've made again not as fast we wanted to do.
Lot of a lot of things we had to work through but I think the team is really excited about the prospects going forward yes.
Certainly customers are adapting.
To our products in there, though they like the value proposition that we're offering them. So we're seeing you know as Mike said, you know good repetitive sales with over 30000 customers and so as long as our team continues to drive those kind of subscriptions you know, where we're just building more and more of our customer base, we're going to continue to see a nice steady.
Growth in that business last point on this one Jim and I think that the stain ability angle that hasn't been a focus of ours. It has been a focus about customers over the past couple of years, starting really to take hold it take root I mean, we are yeah. This is all recycled oil it's at higher quality than from from crude and we're really excited about the prospects over the long haul.
It's again it takes longer to change attitude and so I think that those attitudes are starting to change.
Got it thanks very much.
Thank you. Our next question is coming from Larry Solow from CJS Securities. Your line is allies.
Great. Thanks, Good morning, guys.
A couple couple of quick follow up just on a on the back to the on the pricing on the Indian synergy side. Clearly you guys have done an excellent job you focus much more in the high evaluate streams and you've got in El Dorado performance really proved a lot and you had I think you had an easier comp too as you go back couple of years ago and you built on that this year.
You know going forward to maybe not double digit increases, but there's still room for a sort of mid single digit or even higher increases and maybe that can offset some of you know some flattening of volume in some pockets you spoke of.
But I think.
We just went through you know sort of a three to five years strategic plan and when we look at a de bottlenecking and opportunities to continue expand our incineration capabilities and adding more processing, whether it be drunk shredding.
To be able to process more drums faster or ash handling capabilities and other other kind of technologies, we we see real opportunity there continue to get more tonnage through the plants.
Clearly we have a high demand situation right now when we think that's going to continue to grow or because of the whole Renaissance other chemical industry here in the U.S.
Low price and natural gas is really we believe whats brought back a lot of major chemical companies here. So I I think I think thats, how we think about you know the consideration business Larry right now, okay and on the mix. It specifically you mentioned you know you continue to shift towards more highly highly higher halogenated compounds is there.
Eldorado is that you know is it is there's still room for improvement there is or is it now sort of handling the what you call. The next piece of the you know nephews waste.
Well that plant that brand new plant there as you know was designed to handle those more difficult type streams and so we've we've.
Continue to to ramp that plan up we're still not where we want to be would the throughput of that facility, but we are the team has really made some great progress since its initial startup there and Oh, we do have some additional investments.
Being made in El Dorado, which we hope will allow us to take even more of those materials through the plant because it's not just getting the material into the incinerator, but it's actually getting the material prepared and and are able to be officially you know incinerated within the plant. So a lot of the preparation side of it.
Our incineration business, we can we can add a lot more value to <unk> and just switching gears on safety kleen on the on the close loop obviously.
[noise], it's grown rapidly as you said, but but from pretty small numbers and you talk about a little bit of internal reallocation of investment and whatnot.
Potentially do you know do you still think maybe there was some external opportunities you might be able to make to sort of kick started a little bit more.
I think so I mean, it's a it's about a 2.3 billion gallon market you know when we're just a tiny tiny fraction right out of it you know and so to get to where we want to get our base oil blended oil split which is sort of a shifting it from 70 30 to you know sort of 30 70 blended now you know we we the markets there.
We just we've been adding people, we're bringing on more experienced folks to manage that business. We we have a new leader in Craig Lenington Who's running our SK oil business, who came over you know from shell and Jiffy Lubes go He's got a lot of great experience and so you know we have high expectations that we're building the right team.
Now to.
Accelerate the kind of growth that we see a and what is a you know a 2 billion gallon market right and then just lastly on the on the.
Fine tuned up organizational structure, which you've mentioned last couple of calls sounds like you certainly starting to repay some of that benefit do you see that sort of you know we any early innings of that sometimes these things take a while to really you know to bear fruit. So perhaps you know you got that you'll benefit that fixed several years going forward.
It goes we look at the regional structure that we put in place a you know 18 months or go or so the team has really done a nice job of tying in our field, our tech our industrial and and now even getting safety kleen closer together with that new regional structure is something that we're really working on to kinda Bill.
More of a single platform. So that you know even though we will continue to have clean harbors and safety Kleen as are our brands, we know that from a service delivery we can work.
We're closer together to service each other's customers, particularly as we have grown in areas like our retail business, where there's a tremendous opportunity to leverage each other's service capability. So I would say were in our early innings there as it relates to the clean harbors safety Kleen.
Network out there.
Just one last question if I may you mentioned sort of you recently I think you said internally you guys sort of discussed a three to five your outlook I know looking back maybe 10 years ago, something you had put out sort of a longer term outlook and that was when you're a company was somewhat different them. So more oil focused.
I haven't put out sort of that longer term number.
Any thoughts going you know out over the next Gen 612 months, where you might you know discuss a little bit more long term nature on what you think that this is kinda.
Yeah, why not Larry I think you know, we certainly we certainly should think about doing that and Sharon Sharon sort of our our long term vision, a with a with you and and the street. So let us let us put but let's think about that and get back get back with the team awesome. Thank you appreciate it guys.
Yes. Thanks.
Thank you as a reminder, ladies and gentlemen that star one if you'd like to be placed into question Q. Our next question is coming from Jeff Silber from BMO capital markets. Your line is now live.
Thank you so much just a couple of quick follow up questions. When you were discussing the environmental services segment, you talked about some major iara that that contributed I think about $8 million in the quarter is are those all dawn are we going to see some kind of roll off into the fourth quarter was wall from that.
Probably the one major one is still ongoing a and so we continue to to work on a pretty large event or down in the southeast a water event. So I would say that particular, one and I think the wildlife reserve is still going as well so I I take a couple of those were still ongoing here and this in the fourth quarter Yeah, Jeff.
Any small, but yeah there'll be some rollover effect yep.
So smaller than the 8 million just on third quarter leave so yes, yeah, because one of the it's always difficult and there could be others that could come on and it's tied to very hard to backfill that.
That's fair enough and then in your prepared remarks, you talked about adjusted EBITDA guidance by segment forgive me I kind of a cut out here.
With that for the fourth quarter or was that for the years all for the Jeff What we do as we always give guidance for the full year by segment and we adjust that accordingly as it does this change.
So that that quickly on it as you can get to the nine months it back into it.
Got it okay. Thanks, so much.
Thank you read we reach of our question answer session. That's it from a flow back over to management for any further closing comments.
Okay. Thanks, Kevin Thanks for joining us today, we're participating at the Stifel event.
And presenting at the Baird Industrial Conference next week. So we look forward to speaking with many of you at these and other investor events.
Have a safe day. Thank you.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.