Q2 2020 Clean Harbors Inc Earnings Call
Greetings and welcome to clean harbors second quarter 2020 conference call at this time, all participants will be in listen only mode.
A brief question answer session will follow the formal presentation.
Anyone today should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
At this time I'll turn the conference over to Michael Macdonald General Counsel for clean harbors. Thank you Mr. why don't you may now begin.
Thank you Rob Good morning, everyone with me on todays call or Chairman, President and Chief Executive Officer, Allen S. Mckim.
<unk>, Chief Financial Officer, Mike battles, and SVP of Investor Relations Jim Buckley.
Slides for today's call I posted on our website, we invite you to Paul.
Matters. We're discussing today that are not historical facts are considered forward looking statements within the meaning of 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 August 15 2020.
Information on potential factors and risks that could affect our actual results of operations is included in RCC 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 than through filings made concerning this reporting period.
In addition, today's discussion will include references to non-GAAP measures clean I was pleased that such information plus an additional measurement and consistent historical comparison of its performance reconciliations of non-GAAP measures. The most directly comparable GAAP measures are available in today's news release on our website and in the appendix of today's presentation and now I'd like.
Turning the call over to our CEO Alan Mckim Hello.
Thanks, Michael Good morning, everyone and thank you for joining us.
Before discussing our results let me take this opportunity to publicly thank our entire clean harvest team.
It really those on the front lines for their outstanding work throughout the pandemic.
Our Q2 performance underscores the versatility of our business model and our leadership role in emergency response.
Responding to crisis is an integral part of the job you're a clean harbors said, our DNA and that ability enabled us to jumping to actually late in Q1 and into Q2 with a wide ranging response plan.
It began with setting strict safety protocols and gathering the proper equipment to protect our workforce.
We've been successfully at staying safe the infection rate among our workforce remains well below the per capita rates of the U.S. in Canada.
Now, let's turn to our high level overview for our.
Q2 results here on slide three.
In response to the recessionary environment caused by Cobot 19, we implemented a comprehensive series of actions that included.
Implementing a hiring wage and travel freeze.
Temporarily closing the elite how far we refining capacity.
Transitioning that majority of our non field based employees to work from home.
Lowering our capital spending.
Reducing our overall cost structure to align with revenues.
Launching our corporate 19 emergency response service offering.
On the strength of these actions and improving market conditions. Since we spoke with you in late April we delivered a better than expected performance in Q2.
Revenues came in at 710 million down 18% from prior year.
But the bulk of that decline in our safety Kleen segment.
Our adjusted EBITDA was 135.5 million for the quarter, which included.
Total of 23.4 million from the care exact here in the U.S. and the Canadian emergency wage subsidy or queues.
These programs enabled us to employ more workers than we would've otherwise been able to with the pandemic related shutdowns.
Looking at our segment results beginning on slide four.
Environmental services revenues declined 12% from a year ago due to the cobot related slowdown across multiple lines of business, partly offset by incineration and decontamination work.
Adjusted EBITDA grew 17% as a result of our cost reduction efforts.
Strong performance in our facilities.
Emergency response revenue.
And the two government programs, which accounted for 13.3 million in this segment.
Much response work, whose margins tend to be above corporate average totaled 50 million in the quarter.
Our incineration utilization increased to 87% due to our healthy backlog coming into the quarter and steady streams from chemical customers.
Our mix of higher value waste enabled us to drive our average price per pound up 6% from Q2 of last year.
Our landfill volumes were down 24% due to the deferral of some remediation and waste projects.
But our base business remained stable, which drove our average price per ton up 15% from a year ago.
Overall, a real terrific quarter for our environmental services segment.
Given expect your expected investor interest on slide five we wanted to provide some additional details around our cobot 19 response work.
As of June Thirtyth, we generated $60 million in revenue related to the virus.
As of today, we're now at more than 7000 responses and this work has opened doors for us to new customer relationships.
Our jobs have varied from a small as far as small as a armored vehicle cleaned out to as large as a NASCAR truck.
We anticipate that demand for our services will eventually subside over time.
But we do anticipate over $100 million or cobot work and 2020.
Moving to slide six.
Safety Kleen revenue was down 30% due to a slowdown in both the branch and the SK oil businesses due to customer shutdowns the reduced demand for our core offerings as well as the drop in pesos demand and lower pricing.
Adjusted EBITDA declined 41% due to the lower revenue pricing for SK oil products and costs associated with a temporary shuttering of our refineries, partly offset by cost reduction efforts and government assistance programs, which totaled 8.3 million for this segment.
Two.
[laughter] parts washers services were up 11% for the quarter.
And we collected 43 million gallons of waste oil.
Two thirds of our normal rate.
Given where we were at the end of April were pleased to see this segment bounce back over the course of the quarter.
Blended products and direct volumes on a percentage basis were in line with last year, but at a lower overall volume.
Most recently demand for base oil has recovered some.
To the point that we restarted our Kansas and Nevada refineries in July.
Value of our base oil and blended products recovered somewhat over the course of Q2.
However, with crude prices holding stable and vehicle miles driven remaining below traditional levels. We are proceeding cautiously before reopening any additional we refineries.
There may be pressure on pricing again in the back half of the year as supply and lubricant demand go further out of balance.
And as a result will be continuously.
Continuing to aggressively manage our charge for oil program.
Turning to capital allocation on slide seven.
Given the current environment, our strategy remains to focus on preserving cash to ensure we exit the pandemic and the best possible position.
As we highlighted on our last call we carefully controlling our capex spend here in 2020 and expect to be well below last years level.
In terms of Evan M&A and divestitures were not likely to be active on a near term basis that said, we're confident that we will emerge from this downturn in a stronger financial position and operational position than some of our peers, which will allow us to be opportunistic.
In terms of our debt.
We repaid half of the 150 million that we tapped on our revolver in Q2.
And then late July we repaid the other half given our healthy cash position and how the company has performed.
Looking ahead to the remainder of 2020, we believe we have positioned ourselves well for the current economic environment.
Within multiple parts of our business, we've seen a measurable recovery from the lows we experienced in April.
Within environmental services, our facilities network is still seeing a steady flow of waste volumes have not seen any meaningful decline for most of our large quantity generators.
Never individual products delays due to the virus remain calm and and we've seen slower production with some chemical customers.
That may limit our high margin volumes in the coming months, we anticipate areas like our industrial services and others to ramp up in the back half of the year as maintenance and disposal, where can only be deferred for so long.
Within safety Kleen, we entered Q3 on a positive trajectory would the summer driving season, increasing demand for our services.
But we will still remain below prior year levels.
We are monitoring the new shelter in place mandates closely but to date. The recent rising cobot cases has not the rail the recovery in the SK branch business.
For SK oil, we're raising our production volumes with the restarted plants now online.
We'll continue to actively manage our CFO rates to reflect the value of the waste oil and the collection services that we are providing.
In summary, our Q2 results demonstrated the resiliency of our business model.
Our crisis management capabilities, and our frontline role and cobot decontamination.
Despite the economic uncertainties that remain.
The actions that we've taken a response to endemic and our market leadership gives us confidence that we can achieve our 2020 targets.
So with that let me turn it over to Mike battles Mike.
Thank you Alan and good morning, everyone.
The mirror Alan's comments about how effectively our organization responded to the pandemic.
The work of our outstanding team is reflected in the results we are sharing with you today.
And these unprecedented times clean harbors team.
The challenges presented by this crisis personally I couldn't be more proud of our organization.
Turning to slide nine an income statement, we delivered strong second quarter results in light of endemic.
Revenue declined 18% and we aggressively manage the cost structure and the tightness in response to slowdown.
His efforts combined with assistance, we received from the two government programs, resulting in 220 basis point improvement in gross margin.
I don't highlighted.
Our EBITDA declined less than 15 million from a year ago.
My revenues being 159 million lower.
Our adjusted EBITDA margin for the quarter was 19.1%.
Which speaks to how effectively we reduced costs.
Overtime closing refineries and locations and furloughed workers at needed.
I ask you named performance also demonstrates our comprehensive cost reduction efforts.
Despite the fact that employee benefits, including foreign one k. are up significantly from a year ago, we lowered our asking.
Hey, managed by 20.1 million.
Oh that totaled 9.1 million much related to the impact of cares and queues.
We flex down our cost structure rapidly in the quarter drastically cutting spending that's cutting I spend in multiple areas such as travel in marketing.
We also benefited a meaningfully lower healthcare cost in the quarter.
Which helped offset some severance and bad debt expense.
As expected depreciation and amortization in Q2 was down slightly and 72.5 million.
With only one small bolt on acquisition in the trailing 12 months, we should continue to see this trend going forward.
For 2020, we expect depreciation and amortization in the range of 285 to 295 million.
Which is slightly below last year.
Income from operations was 60.29 down 18%.
In the lower revenue and gross profit.
Essence, 52 cents in Q2 questions 65 cents a year ago.
Turning to slide pad, we emerged from the second quarter with our balance sheet in terrific shape.
Our cash and short term marketable security exceeding 500 million at June Thirtyth.
That total includes 75 million of funds still drawn our revolver that Alan referenced.
Entire 150 million, which we buy out on the abundance of caution when the pandemic again has now been fully repaid.
Given the current environment, our collection team keeps cash coming in the door from customers and our payables balances shrunk with the lower revenue and associated costs.
After the full pay down of our revolver, our current and long term debt obligations today fit at 1.56 billion.
Our weighted average cost of debt remains on track and 4% when the healthy blend a fixed and variable debt.
We've actually lowered our leverage in Q2 from where it was that in Q1.
Hi, John our net debt basis now sits at 2.1 times trailing 12 months ended June Thirtyth, which puts us in an excellent position financially.
Net debt to EBITDA ratio and data were 15% from a year ago.
Turning to cash flows on slide 11.
Cash from operations in Q2 was up 29% to 139.8 million.
Capex net of disposals was down 25% to 40 Tonight.
We are covered response plan to preserve capital.
The result on an adjusted free cash flow of 98.19, which is well ahead of prior year.
Given our cash flow has trended, we're slightly raising our expectation for capex for the year, we're now targeting capex net of disposals and the purchase of our headquarters in the range of 100, <unk> hundred 55 to 175 million.
During the quarter as planned we did not repurchase any shares of stock and year to David purchases stand at 17.3 million.
We will be cautious in our approach to any meaningful level buybacks until the market are well into their recovery stage.
Moving to guidance on slide 12, given how well I business has performed throughout the pandemic and based on current market expectations conditions, where we establishing 2020 guidance.
We now expect 2020 adjusted EBITDA in the range of 470 to 500 million.
This is based on the assumption of a slight slowdown in our environmental services profitability from Q2 levels, while the safety Kleen segment improved sequentially.
This guidance assumes that there will be continued localize outbreaks in the virus.
Not assume any kind of nationwide shelter in place like we saw in early Q2.
Looking at our guidance range from a quarterly perspective, we expect our adjusted EBITDA in the second half of the year to be evenly split between Q3 and Q4.
Here's our full year 2020 guidance translates from segment perspective.
And environmental services, we expect adjusted EBITDA to be just slightly above 2009 canes level, a 446 million.
Growth and profitability within within incineration contributions from the expected 100 million and decontamination work.
A copy and comprehensive cost reduction initiatives will offset declines in profitability within industrial services landfills, remediations waste projects and other lines of business.
For safety Kleen, we anticipate adjusted EBITDA to decline approximately 20% from 2019 282 million.
We expect the branch business to remain below pre coven levels in the back half as vehicle miles driven I still less than historical norms, well above Q2 levels.
At the same time, we expect SK oil to rebound from a challenging second quarter at the base all market improves from a difficult April may period, and we continue to aggressively manage the front end of our me refining spent spread.
And our corporate segment, we expect negative adjusted EBITDA to be essentially flat from 2019 188 million due to increases in fall, one k. semichem bad debt, largely offset by lower incentive compensation and cost savings.
Based on our current guidance and working capital assumptions, we expect 2020 adjusted free cash flow in the range of 200 to 230 million.
Free cash flow is always hard to accurately predict due to an influence of working capital demands however, with our ability to defer all payroll tax payments from April to year end.
Total 360 million.
It is likely that we will deliver a free cash flow shareholders, certainly north of 200 million.
In summary, while Q2 and not without its challenges it proved to be a strong operational quarter for the business.
As Alan highlighted we're a crisis response company at our core and we can thrive in these types of dynamic environments.
Looking ahead, we will pursue additional cost control initiatives, while market conditions remain limited.
That said, we see the opportunity some of our stalled lines of business to recover.
Some of our project and turnaround work may ultimately push out until 2021.
Well, we see enough opportunity in the market today to support facilities network in the back half of the year.
Within safety Kleen, we expect a steady uptick in demand for our core branch services well with what Meanwhile, within SK oil, we will continue to ramp up basin blended production.
And lastly, we remain focused on providing deep cobot decontamination services.
The race toward a vaccine continues.
With that Rob Please open up the call for questions.
Thank you will now be conducting a question answer session.
Good to ask a question today. Please press star one for me telephone keypad and the confirmation don't indicate your line is in the question Q.
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One moment, please hold we pull for questions.
Thank you in our first question is coming from the line of Tyler Brown with Raymond James Please state your question.
Hey, good morning, guys.
Yes.
Hey, Mike So I just want to make sure that a habit, but the 23 million in EBITDA from the assistance was that basically a P.P.P. payment with roughly half of it in yes in half and SK or is that is that not right. Yeah. So data. It is so first of all before we get into it in my prepared remarks I said.
We talk about free cash flow for the year, we're going to defer some payroll tax payments and I I should say 36 million I think I said 360. So that's a that's wrong. So 36 is the right number and that's why some people got that crazy.
So the tie that back to back to your question. So that the money. We received is broken into two parts that a portion of the is from the Canadian government as Alan mentioned, the Canadian emergency wage subsidy and that's about kind of that and the other 13 or sell is from the care that that's not PBP loan that is part of that that is.
Is it retention credit and that monies is not is not refundable, it's it's a grant not and not alone and and that is broken out between.
13 million NDS 8 million, an S.K. in about 2 million in corporate.
Okay, Yeah, no thats very helpful.
Embracement of wages toddler doll in a in there and on the PNM, where it belongs whether it be Cogs are SG name or what have you.
Okay. Yeah, I know, that's that's very helpful, but to be clear, there's not there's not an expectation of additional assistance in the back half guide there's nothing there today I do think on both.
Queues second version that they're working through the Canadian government and the carriers that both the house in the Senate Bill have additional monies available for the retention credit how much we get how much. We qualify for is an open question and there isn't really much of anything in the back half of the year in the number we gave this morning.
Okay Awesome, that's helpful and so Alan this may be a hard question, because I know that theres a lot going on in SK.
But but based on where base oil is and CFO is today and if you isolated just a re refineries that are operating let's call. It normally do you feel that you're achieving an adequate spread or even a pre covert spread on those gallons I mean, it's a gut feel but it feels that the team is managing that spread very well, but it's really hard to.
See with all the noise, Yeah, I think I think we're really managing the spread very well, but unfortunately, we are carrying a and have been carrying a lot of.
Surplus capacity.
Because when when all the state shutdown and when all the driving really was significantly reduce the the volume of waste oil obviously available to US was significantly impacted and then also the demand for oil was also significantly impacted and so on both sides of the coin you know we had to address.
That and so by.
You know temporarily shutting.
Our plants you know.
We always keep people. They are we always have to keep the plants ready and then compliance. So we carry a lot more cost when you know that otherwise would be absorbed that they were running so.
I think the team has done a really good job of managing the spread.
Okay, and just would we expect that gallons collected would just be slightly under last back half of 19 is that a good expectation. So I think we're seeing a we're bringing drivers back we didnt have suffered a low some.
Drivers you know and we're bringing them back, though we are hiring more drivers today. So our expectations by the ended the year that up volumes were back to where they were.
Based on what we're seeing right now.
Okay and then that's it that's great and then my last one Mike. So I think you guys are about as cash heavy as maybe we've ever seen you your leverage as a two times you have a 4% coupon I think you're projecting additional cash flow in the back half I totally appreciate the four pillars of the capital allocation, but when should we really think about you putting some capital to work.
Maybe on buybacks or acquisitions.
I think a this Alan I mean, we would very much like two to.
To.
Continue with our acquisitions.
We've had some.
Discussions out there, where we've been looking at some opportunities that have been presented themselves.
Again.
We're somewhat relieved that we didn't do a couple of deals that we have looked real hard at prior to coal bid because I think integrating.
Acquisitions during that you know those last four or five months would have been extremely difficult with you know at least in our case over 3000 people working from home.
So I think as we get out of this a pandemic and and we get people back I think we're going to be a in a better position to acquire and integrate businesses like we have in the past.
All right well great guys I appreciate it.
Okay.
Thanks Todd.
The next question is run the line of David Manthey with Baird. Please proceed with your questions.
Yes. Thank you good morning, guys.
Turning to.
Yeah. So first off a three part question on on yes first.
You have a read on what we might see in terms of incinerator capacity utilization in the third quarter.
Related to that second is did you pull forward any scheduled downtime and then third you mentioned, yes profitability is supposed to be lower quarter over quarter here sequentially is that due to the rejected a reduction in the government assistance programs or is that if we exclude the.
The benefits here in the second quarter.
I think on the on the maybe Michael take the downtime on my anticipation is is that you know that normal turnarounds for our incinerators is progressing and we didnt pull anything forward and we did bite into our deferred a little bit but quite frankly, it was above the historical average anyway. So.
When we came into the at the end of the first quarter, we had a lot of waste not only on site, but throughout our Tcf network. So I think we feel good about you know where we are now into different basis, and I think the plants are running as as expected and I would think utilization will continue to be.
Quite strong Mike you want to chime in on Yeah sure. Dave are you know so first of all their no in the back half number there is no.
The government money that if we do get any money will be upside to the model, maybe like a million bucks under that under the Canadian we typically but that's that's about it I just don't just to set that expectation there utilization in the second applebee's with his normal I think the mix is not the Israeli what's going to drive a little bit of profitability with chemical being down a little bit.
Versus Q2 member waste business, we get some as we get this information we get the waste late and I think we're experiencing a little bit here in July and not a lot I think it's flattish if I'd have to saying from Q2 to Q3, India and the incineration part of the business.
Down days are normal nothing we didn't move anything around.
Okay sounds good and then just a two parter on on the a S.K. side.
Is it right to assume that as the facilities went down those shuttered facilities you did routine maintenance on it you pull that forward and then second.
Alan you mentioned the potential for.
Lube oil supply and demand getting out of balance later this year I'm just wondering if you could clarify that statement.
Sure.
I guess and on the shuttered and maintenance or maintenance. We also did quite a bit of capital investments in a number of the plants that were shut in so our anticipation was is that this was gonna be temporary.
And we did take advantage of being down to accelerate a couple of key capex projects.
That are that are gonna be complete here relatively soon.
I think the.
As we see the it <unk> you know the crude oil runs for.
The refineries and the amount of a product set of being made obviously that has recovered quite a bit. Although we find reason maybe only still running 70, 580%.
With the significant decline in jet fuel.
Certainly there was a.
To some extent, we think a pressure on the basal side of the business.
As well as with the IMO not really kind of materializing.
Uh Huh, we just see that the market is still somewhat out of balance from our expectations. You know where we were in January and February and I think that was really the kind of Carlo color that we were trying to explain in our in our remarks.
That's great. Thanks, very much okay. Okay.
Our next question is coming from the line of Michael Hoffman with Stifel. Please proceed with your question.
Thank you very much.
Well, that's kao what should we be using for production activity in the second half just instead of trying to guess.
The gallons per plant that are being turned on.
HM.
So one twentyeighty Chicago's Kansas is what 15.
Hello out as 10.
I don't have that have that number handy I consider those are directionally those are the right numbers yes.
I would say Michael for those three locations, Okay, and then average branch revenue per week, how would you describe the trend.
Relative to pre co there where are we per cent recovery.
Yeah, So Michael it's all about exit velocity here in June and so we were in that in the low 80% range by branch by weak as we exited June we had that ramping up into that mid to high eightys as we get into Q3 and back into low Ninetys in Q4 for the asking management.
Okay, all right at that that's terrific.
Yep Yep, I think that makes sense and then just wanted to make sure heard scribbling number so fast someone makes I got them right. So the guidance says, yes, it's flat to up year over year SK is down 27, corporate overheads basically flat that gets you to about the midpoint at 45 correct.
Okay.
In the S.K. I'm assuming.
Your your inference was down 20 that the S.K. is down more than 20 S. K O is less than 20, how what's the gap. There is that once 25 in one's 15, and or how do I think about that now that the losses and probably more in the ER and the SK oil side than the asking each side.
Okay.
Okay, and then in your midpoint of guidance, what should I account for the benefit from decontamination and then I'm, assuming there's 23.4 million in the for 85 in both free cash flow and the 215 for three of the 215 free cash flow in the 45 grew EBITDA, but what's the de Khan.
Yes of both of those so we don't give that we don't give that number out for competitive reasons, it's about the corporate average though.
The corporate I've, Okay, right, that's what I needed. Thank you so much.
Our next question from the line of Jeff Silber with BMO capital markets. Please proceed with your questions.
Thanks, So much just wanted to go back to the pandemic release funding I just want to make sure I understand that this is not in revenues. It's just an off that either to cost of services or SGN a is that correct correct.
Okay got just wanted to double check on that.
Now let me he mentioned I'm all 2020 briefly can we get an update on what's going on there and what do you think is going to happen over the rest of the year.
No I just think there's been such a huge disruption as you know a the whole a shift from.
The 3% software to half percent certainly has taken place I don't think that we have.
Heard of any relief at all given what I think just the sheer volume of decline in demand.
Before you don't have percent oil and subsequently how that impacted the biggio market the vacuum gas oil market all of that it's just been turned upside down so when we when we looked at where we work coming into early January so where we are today I mean, it's just a totally different ballgame from from other than we could see.
Yeah, It's Jeff one thing to add so just to be clear I am always still regulation and still applies and just you know ships I'm moving right cruise ships anchors. It just hasn't really gotten unstuck and so I. Alan is obviously I am always and we had we had vision to this time, having IMO being a big.
Catalyst for this business in 2020, and it hasn't happened yet that doesn't mean, it's not going to happen. It just hasn't happened yet because of because of the pandemic frankly, yeah.
Yeah completely understandable and one final until we get this question the lots I'll just ask you we've got a big election coming up over the next few months it anything on the horizon. Besides tax reform that you think might impact your business. If we have a change in administration. Thanks.
No I don't think so at this point I mean.
We've seen historically that no matter what administration is in.
Environmental rules and regulations are being enforced and.
And new ones are being promulgated so I I don't we don't typically see.
I wanted maybe ministration to another really impacting our business on a short term I mean, we can debate as to what's going to happen with corporate tax reform and then in a different administration, but you know a lot of the state lot of regulations around what we had to comply with the state level and they just just just a diligent as they've always has been when enforcing state regulations on us and on that.
Customers.
Okay, great really helpful. Thanks, so much.
Our next question is from the line of homes up Missouri with Jefferies. Please proceed with your question.
Good good morning, Thank you.
I was hoping you could hi, I was hoping maybe you could just give us an update on just what you're seeing in the captive incinerator incinerator market are you seeing more of those shut down are you seeing.
People acquire them.
How does that capacity you know evolve over time, a and anything you know with covered that disrupts. The are just just any update there would be helpful.
We've seen a lot of.
What I would say lot of noise in that area as you can imagine because that is customers excuse me as good as our customers were impacted by Cove. It obviously that impacted their their plants and in some cases, we saw our captive shut down and.
We got a lot of volume because of that we've not sure where all this is going to shake out because it's so much uncertainty there, but I'm sorry, I would say that it's been a a positive force a we did see a one one plant that was taken over by a competitor.
That really struggled to try to handle commercial hazardous waste that site. We subsequently we every game that business that we had lost to them or and ER and I think that's probably true for.
Any captive I'll do that wants to try to go commercial a very difficult to have all the necessary a pre treatment and processing capability to kinda handle that kind of waste that the commercial hazardous waste business Oh generate so I I would say that we're still looking at it at the captive close.
Sure as a positive for us.
Got it and not just my follow up question would be just around the average price per pound in the incinerators.
You know, we were running yard double digits, and where at 6% today, which is still very healthy.
Yeah, and I realize it's you know a function of mix.
But could you just comment on you know do you see mixed benefits as decelerating, given where we were or just how to think about the average price per pound of the incinerator going forward is 6% the right number going forward relative to you know the long history you a hard.
Ah or is this going to go back to sort of their double digits that we saw you know pre colbert.
We we continue to look at mix is the most important Oh thing right now for us that sits in our control.
But I would tell you that we've taken our foot off the gas on price increases right now realizing where our customers are we saw it on the industrial side of our business. For example, we saw our.
Big or requests for discounting and lowering of our price you know first for the next six months or or or nine months. So we know what we've been trying to do is worked with our customers out there.
We've held off on any new price increases realizing where everybody is in dealing with this pandemic and we'll probably we look at that in January.
But I think the price number that you will see is gonna be really reflective of a of the mix right now.
Got it. Thank you so much okay hamzah.
The next question is from the line of Brian Maguire with Goldman Sachs. Please proceed with your question.
Hi, good morning, but a couple one I think this little bit back to Michael's question, but just the what the two refineries restarting any sense, where production volumes could be in threeq versus twoq you level or.
Or sales volumes that you could get that granular with it.
I think I think the combined.
It was about 35 million gallons from those two on an annualized spaces and they are both running.
Typically our plans for run full bore when when we started back up again. So by the end of July we made the decision to turn those two plants on so that would be the annualized number.
Maybe I'll try to answer your question, a little different way, Brian and that or you know will be at you know kind of 75% without friends life and as we think about the profitability of that of that business. You know we took the kind of the exit velocity in June and kind of what's very modest as how we think about July August and September so it really is.
As a modest recovery from when the Atlanta, and due to a and when that ramp up going into Q in Q3 in Q4 and into 2021.
Okay, Great and then on the yes, you name it down 20 million or so year over year, just wondering how much of that you think is a sustainable either through the back half of the year on probably more importantly, just once we get sorted through the crisis, you expecting probably a lot of the health care stuff will come back all the delayed surge.
Greetings and a you know people getting back to work well, we'll probably see <unk> reflation that travel expense, maybe doesn't come all the way back but I'm packs.
Yeah, obviously some of the government assistance that goes away that you know kind of of the $20 million. How much of that you think is it's truly out of the business versus stuff will eventually come back in.
Yeah, Brian extremely good question that we when we we've done a lot of work to think about both on the both on the cost of goods sold in on SGN at bolt had some real cost savings in there some of that's government funding and it goes away and but I think of it kind of as it has that as three different buckets. First bucket is you know things that happened to every company in the world and wed.
Health care costs of your self insured going down and and travel cost going down and other things that kind of affected everybody and so we obviously when the beneficiary of that in my assumption is that in a post pandemic world over some time horizon those costs come back in a relatively quickly six months three months year, depending on how you look at it.
The the other costs I think that kind of because of the crisis because without leadership is lower for longer we took some aggressive actions around taking costs out of the business.
Both on the X gene ate side and on the upside when looking at over time looking employee utilization looking at leases looking at facilities.
I think facility shutting locations being very aggressive about that I think.
Thank you on that is that we actually put some good tools in place that Ted Ted to manage that more effectively and those types of tools and that type of muscle doesn't go away and the moment, we all going to Schottenheimer. So I really do believe that over the longer horizon bolt on yes, Gina and on the cost side, there's margin expansion that will experience out of here because the cost me took out of the actions we took.
You know didn't affect sales I mean, the Salesforce is there and we're hopeful that covers will have an opportunity there to really leverage at our cost structure and be more should be smarter about it and take some lessons we learned in this pandemic and apply it over the longer horizon. So what that exact number is up to 20 million stays in going to be hard to put opinion rocketed a lot to offset to that.
With that debt and other things, but I think that over the over the long haul. It really is a lesson here that we learned and there's some real savings will get over the long horizon.
Yep.
But for me, yes, we appreciate everything you're doing on the decontamination side to Ah to help people get back to work just you're looking at that market. Obviously, it's kind of a you know great to have it while you have it and you know but.
A lot of reasons, you hope that doesn't.
Continue for forever, but are you seeing you know just the competitiveness in that business I mean, it seems like one where you know a lot of people are probably looking to get into that market because of the opportunity today, yeah. So that the 50 million or so that you had in the quarter. It seems like you're expecting some deceleration just wondering how much of that is yeah just.
Because you think that did the actual market, it's going to be shrinking from twoq levels versus just.
Increased competition are you and transition at year Progressive.
I guess I would say that you know there there's always been competition.
In regard to some of the decontamination work that we've historically done and I think people choose clean harbors really for the professional approach that we take and training and a personal protection and really sort of the insurance policy that we provide for them.
There are plenty of firms out there that was janitorial kind of firms that'll that'll also you know a provide that kinda decontamination work, but we just think that we're not really competing with them. We don't look at this from a pricing standpoint to be competitive with these other players out there so it any slowed.
Down is not necessarily because we have competition I just hope we all pray that it's going to continue to slow down as the infection rate slows down.
Yep absolutely okay. Thanks, so much guys. Good luck.
Thank you okay.
Thank you. The next question is from the line of Noah Kaye with Oppenheimer.
Hey, guys. Thanks for taking my question really nice job managing both profitability and you know the safety.
I would like to start with just clarifying maybe expectations around pricing that's trajectory a in yes.
Sounds like you know, we may see a bit of downward pressure in the back half partly from mix and then also from pausing. These price increases I guess, you know looking a little bit longer term you know with the assumption that you could maybe resume price increases.
You know for a portion of your customer base and 21.
And then just assessing production planning for Petrochem do you think we could potentially see a reacceleration of price mix benefits and 21 at a reasonable expectation at this point.
No I that's that that's a good question and you know too early to kinda talk about 2021, but I will say that you know over the past 10 years in our pricing, we've been able to get 3% to 7% and I don't see anything that's going to change that no enough post pandemic world. So a tough didn't really speak to 2021, but I would say that.
The Alan spoke of it doesn't affect you do in Q3, and I think that it's going to be.
My thing to do the smart business soon to do but over the long horizon I don't see that I don't see us any type of shift there as a matter of fact, what I do see is that is that and as an opportunity for clean harbors. When you talk about putting supply chains closer to our to our to the end customers and it's something that.
Well just learned is that that that might not be that might not be a terrible idea. So I think that might be a long term catalyst for us.
In years.
Yep.
And then just where does the p. past remediation opportunity set at this point habits, that's been some noise around both the clean up and then incineration as a treatment options. You know how are you thinking about the opportunity.
Yeah, I think shot now and I'm sure hasn't beyond this is that help you pass remains as a as a very important opportunity for us.
Nothing has changed in a in a in a post pandemic world and that and that I think that we really can get a as or perhaps a new administration, maybe that changes I I don't know, but.
We still no as it real opportunity that's out there and we think it's very Ah Ah compelling we took a lot of inbound inbound traffic on it it's still a lot of learning on it.
And then I think it's gonna be a long term catalyst for the industry.
Great. Thanks, guys nice job they say no. Thanks now.
As a reminder to ask a question today Me press Star one.
The next questions from the line or Jim Ricchiuti with Needham and company. Please proceed with your question.
Hi, guys. This is Mike she goes on for Jim Ricchiuti. Thanks for all the all the detail on the color today Mike.
I was curious if you could give me some.
Some more detailed coming back to this econ work, the 100 million or so we're expecting 2020.
Circling back to the slide looks like you generated 60 million year to date 50 million in Q2. So that additional 10 million is that would come in in Q3, so poor or was that a partial benefit to Q1 and then how I guess, if we're looking out to the rest of 2020 should we expect this to kind of tail off in Q3.
And then an additional tail off in Q4.
Yeah, Mike So that the original so 60 million think of it this way for the first half of the year kind of it was actually in Q1 toward the end of March and 50 was in Q2. So we're at 60 million kind of year to date through the end of Q2, We said 100 mindset implies a 40 million in the back half of the year you know more in Q3.
And less in Q4.
They give you any.
Yes, yes, exactly and then coming back to the assistance funding that you guys are seed.
Just curious can you help is better separate what was included in cost of goods sold versus Opex is it as simple as taking that to.
2 million and assistance is attributed to corporate and it's something that the opex with the remaining call it 21 million or so up in Cogs.
We'll give you all he was all the details. So you had the Internet I financial statement that Q is going to be Bob in minutes, so you'd be all laid out there as well so.
23.4 million in Q2.
You know 14, a bit in Cogs and about nine of the Ines DNA.
And as a broken out by segment 13, and environmental services, eight and SK into and corporate.
Okay. Thank you for that maybe just one other.
One other question if I could squeeze one more in I'm just looking at the EBITDA guidance range that you gave US who are the year. This for 70 to 500 million can you help is of course that some of the puts and takes if I'm trying to think about what gets you to the 470.
Versus what we need to go wider go your way to get you up to that 500 bogey.
Sure. So you know.
In my opinion. It really is this is you know, it's a speed and trajectory of of the growth of certain parts of our business. When you think about the environmental services business and if that business slows down in theory. The de kind work will be at an offset to that is as as pages that sound and so I'm not really as concerned about the.
But the environmental services business on the same thing business. It depends on the trajectory of you know kind of miles driven and demand in oil and that's in that into valuable that's going to drive a low into that range and versus the idea that range, yes that picks up and continues on its current trajectory and does even better.
You know that won't that will really drive that corporate expenses, we managed to be tightly as you know and so that that's going to be what it really comes down to the in my opinion, the SK business will kind of resulting in a high end or the low end if our of our.
Right.
Very helpful. Best of luck I think you. Thank you thanks, Mike.
Our next question, it's been a line of Matthew Fields Bank of America, Let's see if your question.
Hey, guys I'm just wanted to ask a balance sheet question into I. Appreciate you paid down in half the revolver balance in the quarter, but.
Given the pretty robust cash balance you have now and then the robust kinda free cash flow outlook for the back half of the year.
You know why not why not pay down the fall balance or is that something you're planning to do kind of if the rest of the year works out in your and your unplanned.
Matthew that's that's a genius idea, we actually see actually we actually paid it down before the ER before that early in early July and so when we mentioned that in the script you must not gotten oh, sorry, I dialed in to make those that that's okay. That's one that I know and then [laughter] and then and then sort of against that same backdrop.
No no you don't have any real scheduled maturities.
But you know what what do you think about coming to.
Overall debt load.
As a function of kind of levered balancing leverage with kind of you know maybe ramping share buy backs up.
Later this year, given your kind of healthy free cash flow, where did that balance strike you.
I kind of gets point in the recovery.
I think I've, a real focus right now is to try to grow the business and grow through.
Organic growth as well as acquisitions and I think we're well positioned to do that with would still a substantial amount of our workforce working from home when we start thinking about doing an acquisition and integrating those and and how we typically would go about an acquisition.
You know that that would make it a lot more difficult for us to do today than than we hope will.
We'll be in the next let's say six months or so so.
I'd like to things that we could really take advantage of the strong balance sheet, we have in the low.
Net leverage we have and.
No.
Do an acquisition that would be a sizable transaction for us that's what I'd like us to do.
Okay Fair.
Fair enough. Good luck. So thanks, a lot of apologies I I missed a trip to the remote [laughter] Patty. Thank you.
Thank you at this time Weve reached the end of our question answer session and I'll now turn the call back over to Mr., Alan Mckim for closing remarks.
Okay well. Thank you thanks for joining us today I hope that all of you and your families are staying safe during this pandemic.
Over the remainder of this month, we are participating in virtual investor conferences, with Needham cycle and and Raymond James.
We look forward to connecting with many of you then have a great day.
Thank you everyone. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.