Q3 2020 US Ecology Inc Earnings Call
Good morning, and welcome to the third quarter 2020, U.S. ecology Inc. earnings Conference call.
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I would now like turn the conference over to Eric Gerratt Chief Financial Officer. Please go ahead.
Good morning, and thank you for joining us today.
Joining me on the call. This morning, our chairman President and Chief Executive Officer, Jeff Feeler, Executive Vice President and Chief Operating Officer, Simon Bell and executive Vice President of sales and marketing Steve Welling.
Before we begin please note that certain statements contained in this conference call that do not describe historical facts are forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Since forward looking statements include risks and uncertainties actual results may differ materially from those expressed or implied by such statements.
Factors that could cause results to differ materially from those expressed include but are not limited to those discussed in the companys filings with the Securities and Exchange Commission.
These risks and uncertainties also include but are not limited to statements regarding the continued impact of the COVID-19 pandemic on our business.
Macroeconomic impact of special specific end markets in which we operate.
And our expectations for financial results for 2020.
Management cannot control or predict many factors that determine future results listeners should not place undue reliance on forward looking statements, which reflect management's views only on the date such statements are made we undertake no obligation to revise or update any forward looking statements.
Or to make any other forward looking statements, whether as a result of new information future events or otherwise.
For those joining by webcast you can follow along with today's presentation for those listening by phone you can access today's presentation on our website at www Dot U.S. ecology Dot com.
Throughout Yesterdays earnings release, and our call and presentation today, we refer to adjusted EBITDA adjusted earnings per diluted share cash earnings per diluted share and adjusted free cash flow. These metrics are not determined in accordance with generally accepted accounting principles and are therefore susceptible to varying calculations.
Definition calculation and reconciliation to the financial statements of adjusted earnings per diluted share cash earnings per diluted share adjusted EBITDA and adjusted free cash flow can be found in exhibit a of our earnings release we.
We believe these non-GAAP metrics are useful in evaluating our reported results.
We would also like to point out that our third quarter results include contribution from the NRC Group Holdings acquisition that closed on November Onest of 2018.
Throughout this presentation, we often refer to NRC group holdings as NRC.
We have also provided data on Standalone U.S. ecology basis, which is referred to as legacy us ecology.
Similarly for Standalone NRC data, we refer to that group as legacy NRC.
This disaggregation is an attempt to provide increased transparency and understanding of the underlying business.
With that I would now like turn the call over to Jeff.
Thank you Ark and good morning, everyone. We appreciate you all taking the time to join US today and hope you and your families have remained safe during these uncertain times.
Before I have Eric review, the third quarter financial results I'd like to update everyone on how you US ecology is navigating the current business environment for those that are following the webcast presentation. Please direct your attention to slide five.
Despite continued COVID-19 headwinds our third quarter results were substantially improved across most of our business units, resulting in an 11% sequential improvement in revenue and a 17% improvement in our adjusted EBITDA from the second quarter of 2020.
The resilience of our overall business diversification of our services and execution by our exceptional team compounded by the capital preservation initiatives implemented earlier. This year resulted in an 8% improvement in year over year free cash flow.
Overall, the company delivered total adjusted EBITDA of $45.4 million, an increase of 9% over prior year.
On revenues of $238.1 million.
Year to date, our adjusted free cash flow of $51.5 million is already ahead of the adjusted free cash flow generated in all of 2019.
We ended the quarter with $102 million of cash and approved net debt position from the beginning of the year and repaid $30 million of debt.
Proactively drawn off our lines of credit at the beginning of the pandemic several bright spots the merged this quarter and into it as industrial activity show signs of life, leading the way is our collection of services based business, which generated solid top line growth and EBITDA margin expansion, helping to offset.
Some of the current industrial softness impacting the waste side of the business.
Moving on to slide six legacy Us ecology field and industrial services revenue was up 10% led by strong execution in our small quantity generation emergency response, and total waste management services.
With higher activity levels. This segment also saw adjusted EBITDA margins expanded 59 basis points, which helped offset the negative operating leverage experience.
Operating leverage experienced on the waste side to the business due to COVID-19 induce manufacturing slowdowns.
Our legacy US ecology, environmental services segment revenue declined 12% during the quarter, reflecting a 15% decline in base business revenue, partially offset by an 8% growth in our event business as project based shipments remained strong throughout the quarter.
Sequentially based business was down just under 1% from the second quarter of this year as we saw a trend stabilize and start to improve.
Event business was up 13% sequentially.
Overall legacy us ecology saw a revenue decline.
Up 6% compared to the third quarter last year, but a 10% sequential increase from the second quarter of 2020 legacy.
Legacy US ecology is adjusted EBITDA was down 8% when excluding the $2.6 million a business interruption proceeds right.
Recognized in the third quarter of 2019.
Sequentially legacy US ecology is adjusted EBITDA was up 7% from the second quarter of 2020.
Taking a look at legacy NRC results on slide seven and our STI contributed $81 million of revenue, which was up 15% sequentially from our second quarter.
NRC revenue was down 21% from the prior year, primarily resulting from energy waste services business.
NRC generated adjusted EBITDA of $9.7 million in the third quarter, a sequential improvement of 87%.
And our seats field and industrial services business saw revenue and EBITDA growth, both sequentially and compared to the third quarter last year on increased cobot decontamination industrial and weather based emergency response services as well as synergies.
With with revenue in our energy waste disposal business down 30% sequentially from the second quarter. We have worked diligently to take further costs out of the business, while adjusting our go to market strategy.
To focus on non drilling waste opportunities there.
The resulting EBITDA loss of $766000 in the third quarter was a 60% improvement over the second quarter of this year. We believe we have right sized the business for future quarters with some remediation projects and a slight pickup in rig count. We believe we have found bottom we continue to expect this business to be break.
Even to slightly positive on an adjusted basis adjusted EBITDA basis in the <unk> for the full year of 2020.
Turning to NRC integration activities net synergies are ahead of our $7.2 million 2020 plan for the first nine months of the year.
While we still have plenty to do cost savings are coming in better than anticipated and revenue trends are improving in the third quarter and beyond.
As a result, we now expect net synergies to be in the $10 million range for 2020 other integration activities have not slowed and we remain on track.
For our project plans.
Despite cobot and related travel restrictions.
When you look beyond the quarter two year to date results. The resilience of our business model is even more evident in the first nine months of 2020 in the face of a global pandemic, our legacy US ecology business delivered the same level revenue when compared with the prior year. This translated into us achieving that.
Adjusted EBITDA on our legacy Us ecology business that was down just 3%.
From the same period last year. This solid performance underscores the successful execution of our multi year strategy to grow our services based business to support a robust treatment disposal recycling network.
When looking at NRC, we are still in the early stages of realizing the benefits of this combination will COVID-19 and the related impacts on the oil and gas markets have more severely impacted this business. The non energy services have begun to show the benefits of the combination in our third quarter synergies are trending ahead of.
Our first year targets and the outlook remains promising beef.
Before I turn the call over to Eric I want to touch on some of what we have been doing with regard to environmental social and governance initiatives. While we published our first sustainability in citizenship report in 2019, we recently formed a separate corporate responsibility and risk committee of our board of directors.
To enhance our environmental and social reporting updates to our sustainability report are being worked on as we speak and are expected to be update in early 21.
Being a responsible stewards of our environmental resources and promoting a sustainable future is at the heart of what we do everyday you us ecology since 1952 and for the last 68 years, we have been building us ecology into a leading north American provider of environmental services.
As well, we address the complex waste management needs of our customers and do so with a focus on the environment, our people and our communities.
Historically, we have not had the metrics.
To be able to communicate our efforts to stakeholders and those are being worked on as near term initiatives.
Our environmental response on the environmental responsibility front.
While we primarily manage inorganic waste at our landfills, we don't generate landfill gas emissions typical of solid waste firms.
We are looking to target reductions in vehicle emissions by lowering the carbon footprint of our fleet through things like routing software and improved route densities.
Our fix facilities are not high energy users. So the numbers there are already pretty low also.
Also over the last five years, we have been upgrading our infrastructure to be more energy efficient as part of our normal growth and capital investments. We are also deploying capital investments to expand our recycling capabilities and technologies and help our customers reduce their overall waste generation.
As to social responsibility our team members are the most important part of US ecology, we realize this long ago that is our people that drive our success.
Taking care of our team members as a top priority and it begins with a laser focus on health and safety, while we generate safety results that are better than industry standard we continuously invest in our safety programs and are always looking to make prior a process modifications in an effort to drive to zero incidents.
Our social responsibility efforts have created a special call a culture here at US ecology that is built on inclusion respect protecting the environment and continuous improvement in everything we do we invest in our team members with with a total rewards program that includes incentive plans top tier medical benefit.
And learning and development programs. This.
This has led to a highly engaged workforce and contributes to our overall low voluntary turnover levels in the coming years, we will continue to develop and expand on our SG reporting with near with a near term focus of developing goals for the future and or future reporting years, we look forward to updating you on.
These efforts to make a lasting impact on our environment, our people and our communities and with that I'll turn it over to Eric.
Thanks, Jeff.
As I cover the detailed financial review I'll be discussing consolidated results that include NRC before delving into the legacy us ecology Standalone results.
Starting with consolidated results on slide 10 revenue for the third quarter of 2020 was $238.1 million right.
Revenue for the environmental services segment was $112.4 million in the third quarter of 2020 compared to $122.2 million in the third quarter of 2019.
NRC contributed $5.1 million of segment revenue in the third quarter of 2020.
The film Industrial services segment delivered revenue of $125.7 million in the third quarter of 2020 compared to $45.2 million in the third quarter of 2019.
NRC contributed $75.8 million of that by segment revenue in the third quarter of 2020.
Total gross margin was 26% in the third quarter down from 34% in the third quarter last year, primarily reflecting the addition of NRC, which is largely a service based business.
And then disposal margin for our environmental services segment was 38% in the third quarter of 2020 and reflected a loss of $2.2 million from NRC energy disposal and services business.
Gross margin for our field and industrial services segment was 19% in the third quarter of 2020 compared to 16% in the third quarter of 2019.
Selling general administrative spending or asked Gionee was $49.9 million and included $9.3 million for NRC as well as $1.6 million in consolidated business development and integration expenses.
This compared to ESG may of $28.8 million in the third quarter last year, when excluding $4 million of business development expenses and nearly $500000 of a favorable property insurance recovery that was not repeated in the third quarter of 2020.
Adjusted earnings per share was 25 cents in the third quarter of 2020 compared to adjusted earnings per diluted share of 75 cents in the same quarter last year.
Cash earnings per diluted share, which adds back the per share impact of the amortization of intangible assets to adjusted earnings per diluted share was 46 cents in the third quarter of 2020 compared to 84 cents in the third quarter of 2019.
Consolidated adjusted EBITDA was $45.4 million in the third quarter up 17% from the third quarter last year, reflecting $9.7 million from NRC. This was partially offset by an 8% decline in the legacy us ecology business, when excluding $2.6 million of business interruption.
In insurance recoveries recorded in the third quarter of 2019.
Shifting to legacy US ecology results on slide 11 revenues were $157.2 million in the third quarter of 2020 down 6% from $167.4 million in the third quarter last year.
Our environmental services segment revenues were down 12% to $107.3 million on a 24% decrease in transportation revenue and a 10% decrease in treatment and disposal revenue.
As Jeff mentioned, the primary contributor to the decline in our treatment and disposal revenue was a 15% decline in base business, partially offset by an 8% increase in event business in the third quarter of 2020 compared to the third quarter last year.
Legacy Us ecology field and industrial services revenue was $49.9 million in the third quarter of 2020 up 10% driven primarily by higher revenues in our small quantity generation emergency response, and total waste Smith waste management business lines, partially offset by lower revenues in our industrial services.
Transportation and logistics service lines.
Gross margin for the legacy US ecology business was 31% in the third quarter down from 34% in the third quarter last year.
Our environmental services segment treatment and disposal margin was 43% in the third quarter of 2020.
Treatment and disposal margin for the third quarter of 2019 was 44% after backing out $2.6 million and business interruption insurance recoveries related to prior periods.
Gross margin for the legacy Us ecology field and industrial services segment was 16% in both the third quarters of 2020 and 2019.
As DNA for the legacy Us ecology business was $29.5 million compared to $33.3 million last year fixed.
Excluding business development expenses, and a property insurance recovery in the third quarter of 2019.
As DNA was $28.9 million in the third quarter of 2020 down from $29.8 million in the third quarter of 2019.
Legacy US ecology is adjusted EBITDA was down 14% to $35.7 million for the third quarter of 2020 compared to $41.5 million in the third quarter last year.
Looking at the first nine months of 2020 for legacy US ecology on slide 12 revenue was $454.8 million up slightly from $454.2 million in the first month of first nine months of 2019.
This was driven by 6% growth in our field and industrial services segment, partially offset by a 2% decline in our environmental services segment compared to the first nine months of 2019.
Adjusted EBITDA for legacy US ecology was $100.1 million for the first nine months of 2020 down from $103.1 million for the first nine months of last year.
Turning to slide 13, we exited the quarter with a solid balance sheet and strong liquidity, we had cash on hand of $102 million and net borrowings of $724.6 million at September Thirtyth, 2020, which was an improvement over our net borrowings at both December 30, Onest 2019 and at June Thirtyth.
2020.
Our operating cash flow increased to $83.2 million in the first nine months of 2020 up 30% from $64 million in the first nine months of 2019, which drove our adjusted free cash flows up 50% to $51.5 million compared to $34.2 million in the first nine months of 2019.
Looking at our overall debt position at September Thirtyth 2020, we had just over $100 million of available capacity on our revolving line of credit after paying down $30 million in the third quarter of 2020. In addition to $102 million of cash on hand.
Debt is structured such that their low required payments on our term loan b facility, which does not mature until 2026.
This structure gives us ample flexibility at a cost that is averaging approximately 3% and cash interest.
The leverage ratio under our revolving credit facility was four times at September Thirtyth 2020, well under the 5.25 times covenant level for the quarter.
Overall, our solid liquidity and strong balance sheet allow us to continue to operate the business with a long term focus and position us for a strong exit from the pandemic and related market conditions.
With that I'll turn the call back to Jeff Thanks, Eric moving.
Moving to our outlook slide on slide 14, despite the ongoing and challenging conditions. We are all facing we expect continued improvement as we look to capitalize on the economic recovery.
Though uncertainty remains we are reestablishing our business outlook for 2020 that was withdrawn earlier. This year. We are continuing to see data that gives us confidence that better times are ahead of US first our services based business led the way in the third quarter with strong growth. We believe a service based recovery is the first indication of business.
Mission improvement further supporting this industrial production metrics have continued to strengthen through October and are now at levels, we have not seen for many years. This.
This is encouraging and makes us optimistic we will see improving base business conditions in the coming months as we naturally lag production.
In the waste side of the business even.
Even our energy exposed businesses are seeing slippers alive.
With additional investment returns.
As we continue with the recovery, we remain prudent with cost controls and cap and deployment of capital. We continue to limit non sales related travel and other discretionary spending although we have resumed hiring particularly in operations and within our services based business capital spending is expected to come in between.
And 60% to $64 million down from the initial range of $90 million to $95 million. We had set out in February all in we expect that our 2024 full year performance to produce total revenue between $911 million and $931 million adjusted EBIT.
Between $168 million and $175 million, which translates into fourth quarter, adjusted EBITDA between 41 million and $48 million.
Free cash flow should end the year between $61 million to $65 million.
29% at the low end of the range from 2019 levels and adjusted EBITA EPS should range between 36 cents to 50 cents per share.
The obvious risks to our guidance would include a new round of shutdowns like we experienced in April and the inherent risk that event business timing slips into 2021.
I am so very proud of the entire us ecology team as we work together across regions and service lines further integrating our businesses fall, ensuring the safety of our people and meeting the needs of our customers. Today, we are in excellent shape to navigate these challenging times and create a sustainable future for us ecology his team members and stock holders.
Ready to capitalize on opportunities for growth as industrial economies continue to recover with that operator can you open up the call for questions.
Yes. Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if.
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At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Michael Hoffman with Stifel. Please go ahead.
Thank you Hi, Jeff Eric and team hope everybody is well out there as well.
When we think about the base business.
Where did September end relative to the whole quarter and service or how that setting us up for for Q.
And when you think about.
The.
Volume changes and you look at the customer base.
No.
Where the volume trends consistent with the improving.
Sure production activity.
Yes, so Michael on that let's just kind of talk holistically about about base business.
So in the third quarter. It was a little choppy it started out actually pretty improved in July got soft in August and rebounded in September.
When you kind of look at our industrial customer base.
You know I know that a lot of our customers for reach I call. It retooling, but they were trying to get to a new.
Working environment.
With their with their teams and processing and they were processing at lower than than full capacity levels and so that kind of translate it in when you look to base business.
Throughout our whole network, where we ended up seeing softness no surprise with the Midwest as auto started to recover in the end late second quarter and into the third quarter and didn't really probably hit full stride towards the end.
And the related businesses around that the Gulf Coast also saw saw some some challenging conditions on the base side and a lot of that is due to.
The activity level down there as we do a lot of work with refineries and which are heavily populated down there and it's not just upstream energy thats being impacted it's.
It's the full chain and so we've seen we've seen those customers producing less volumes they've also been entrenched entrenched with their own capital preservation initiatives.
Along the way and so that has created some additional softness during the quarter as we look kind of forward.
View.
I would expect that we would see improving conditions sequentially on base business as more waste flow starts part starts flowing through the network we.
We are seeing a lot more improvement in our in our end markets across across the board and as we move into 2021, I would imagine that will even see some of the the more challenging sectors starting to resume some spending and investment in those areas and so that's kind of how we think of the base business right now.
Moving forward.
The other thing that the other thing I'd add Michael just as a reminder is is that lag that we typically experience in our business in terms of when the waste shows up when you see the upticks in isolation production, which are great and they are good indicators. If you look over history, we're about a two quarter lag or from.
I think this cycle, what's unique is things dropped off much faster than they have another cycles for obvious reasons, but I think we're still kind of in that lag period.
Before we'll start to see those volumes really start to pick up along with the the trends you see an ISO okay fair enough and.
I'm not asking for guidance for 21, but do you have a sense of how we should think about cadence.
Yes.
Based on the patterns, you're seeing and as we look into 21, what was the pattern through the year.
Yes, sure if you are talking year over year.
You know where were we had a couple of really strong quarters in Q4 of 19 in Q4 of our not Q4 Q1 of 20. So I would imagine we will still be a negative environment for the next couple of quarters and then as we cycle.
The first round of cobot shutdowns will start seeing increase incremental improvement as far as as far as sequential performance really it's too early to tell.
How thats going to be I do expect some improving conditions sequentially.
With natural seasonality in our base business.
Okay and then the.
The strength of field industrial services, when you pull out and you looked at the legacy you were flat margins, but but I have to believe that.
Theres a mix issue there too that's getting incurring incrementally favorable over time.
And then you get to add in the benefit of.
NRC and what those businesses.
And then on the field industrial side that actually better margin I think than your legacy business.
Yes, that's correct, Michael and you are right as you as you look at consolidated margin.
Gross margin you see that 19% versus 16% last year and then you look at legacy us ecology and that was 16% both so pretty flattish, but so the NRC businesses will and as we integrate and we're seeing more and more traction on this be an uplift in Fms margins because it is 10.
To be higher margin business.
On the legacy Us ecology side I still feel really good about where we are heading we saw another really strong quarter in Sq G.
Particularly on the retail side, so retail was up.
Over 50% in Q3 this year versus last year. So we continue to see a good trend there versus your response business on the legacy US ecology side has also been up.
Some of which are or a portion of which is the Copa de con work that we're doing through the legacy us ecology facilities, but overall I think our margin profile with NRC and even in the legacy US ecology business continues to improve and grow.
Okay, and so to that end.
On the D. con side.
What are what are we thinking about as far as the headwind of that comparability and then.
Yeah.
In a perfect scenario, you don't want to be doing entity ICANN, because we've gotten back to sort of life is normal but maybe.
Maybe there is going to be some like recurring but how do we think about what that headwind is going into 21.
Yes, Steve do you want to give that a shot and I'll supplement.
Okay.
Right at the moment, we're continuing actually has been increasing a bit over the last few weeks.
Don't exactly know, where we're going to be next year, but at the same time that we're doing and the co would work.
Things recover we'll be doing additional hazmat type work that will be more trucks on the road and more activities going forward, but.
The other area that we expect will.
We've come to the end of the mix as we have been mostly working.
Retail stores in places that have been opened things like colleges and universities have not been open and we expect there could be some additional.
New new work on the code front as things reopen there.
Speculation I think a lot of ways, because we don't know for sure.
And then do we have a dollar amount that we're talking about.
Well, we've done roughly $18 million.
Year to date or through third quarter on coated work.
Over 3000 responses.
Ben.
Better clip over the last.
Six to six weeks from that so I don't know.
It just depends Michael I mean, I don't think anybody can tell you what's going to happen with growth next year for sure. It stays the way it's been done we'll continue doing cobot cleanings.
Something changes that will obviously change that market.
Right and you broke up when you said the dollar amount did you say $18 million 19 million 19, Okay. Thank you Yep through September Michael were just over $19 million of revenue on almost 3000 project.
Got it got it and then.
Again.
Looking for a hard guidance, but since that time.
2021 becomes your groundhog here year, and basically repeat 2000, twentys guidance sort of.
But thats sort of the underlying got where this is settling out.
Well I mean, we're not really prepared to talk about 21, right now we're still going through our through our budgeting activities Michael.
If I understood. Your question right on Groundhog is are we expected to be delivering the same guidance for 21 that we did in February of 20.
Yes, I don't see that happening.
For for this next year I think that we're going to be dealing with this pandemic.
Into 21.
You know probably for the at least the first half of 21, if not longer.
And I still think theres too much uncertainty to give a guidance range on that but the but to say that we are going to be a pre cobot levels with still the headwinds in every energy level or in the energy sector I don't see that as a as a plausible scenario okay.
Okay, Yes, I had to get a bill Murray context in here some out thanks.
Thanks, Michael.
Our next question comes from Tyler Brown with Raymond James. Please go ahead.
Hey, good morning, guys.
Hey.
Jeff So I appreciate the guidance, but I was hoping to maybe break apart the EBITDA into the key buckets. So at a high level, how do we kind of deconstruct that low 170 midpoint is it something like zero in the.
NRC energy, maybe something like 30 in NRC call. It non energy and then maybe 40 4500 hundred $40 million to $145 million legacy ecology is that something like that just broadly.
Yes, Tyler so the energy waste piece, yes, we're assuming that that is going to be break.
Breakeven ish from an EBITDA perspective for the full year. So so that's that's that piece on the NRC side, Yes, I think I think your numbers in the right range Uxc collagen is.
I think I think you're in the right ballpark. Okay. I was just looking for broad ballpark that's helpful and so I.
I think Jeff you mentioned, something a little bit about non energy waste streams can you just talk about what those streams might be are those are those energy landfills permitted for different types of ways or what kinds of ways might those be.
Yes, so the landfills that we take primarily took.
Drilling waste I mean that was the core market, but they also took remediation we waste from I'll call it closure or pads closure pets things like that spills accidents, what we're not necessarily seeing that spills and accidents to the same level, but they do happen, but theres a lot more remediation of pits as the wellheads are getting closed.
Down under the regulatory framework and so that is where we're seeing some incremental volume coming in right now.
And to be honest with you thats kind of where some of the core competencies competencies of US ecology comes in because we're always competing for that business along the way and so this is very similar to the event business and we can structure it.
And be more more laser focused on it and so thats what our teams are working on today, we've been seeing that coming through in the third quarter Theyre coming through in the fourth quarter I imagine this will still continue to be a bigger part of our business going forward and tell the drilling starts to return.
Okay. Okay. That's that's interesting helpful.
And then I may I may have missed it but what is the general expectation for events in Q4 did you talked about it being potentially.
Slip into 21, but what is kind of in the interim.
Implicit guidance bodes.
Yes, those sequentially I would expect event business to be down and the reason for that is twofold as one just the natural cycle of coming through kind of the summer construction product the product.
Process. We also had a couple of.
Up a larger accounts that.
Going into their their slower phases, but we have seen an infection.
In our guidance right now we have seen several projects shift to 2021 and they are predominantly due to covered related activities, they're not canceled they're still going they are going to move next year.
On that and so we that's just a normal risk in our business and yes. We're sitting here on November what sect and you know, there's there's really eight weeks or little bit less than that of the of the year. So if there is any weather delays and east any shifting any any of that stuff that could that could.
That can materially change.
The guidance based off house, how strongly that business has been.
Okay. Okay. That's helpful. And then so Eric on Slide 18, I really appreciate the slide on the covenants. So if I just kind of roll the implied Q.
Q4, EBITDA it seems like trailing 12 EBITDA is pretty consistent so are you kind of expecting that your debt ratios are maybe either at or close to peak I mean, obviously, we don't know what's going to happen next year, something crazy could happen but.
Is that kind of the base expectation at least right now.
Yes, I'd say, that's that's the expectation right now.
The the struggle and typically if you look seasonally Q ones one of our our we have a bit of a drag sometimes and in working capital Q4 Q1, depending on how the year goes so that might have some impact.
But I think for Q4, I think from a leverage perspective, we will probably be about where we were for Q3 may be up a pitch.
And then Q1, probably similarly, and then I would again assume.
Assuming things go the right. We expect that we start to then trend back down right right. Okay. And then just a couple of quick questions on cash flow and capital allocation, but.
How should we think about.
Obviously, not giving much guidance on 21, but one thing is in somewhat in your control as Capex. So does it feel that thats going to jump back to call. It pre cobot type levels call. It that $90 million range. If I had if I was looking at my notes. It seem like 21 was going to be a higher.
US ecology legacy year on cell development anyway, and then it was going to drop down in 22, but I'm just kind of curious any just initial thoughts on capex next year.
Yes. So that's a good question so right now what we're planning for is.
We see the road to recovery with normal economic cycle, and we've gotten more confidence around that given that we've lived with this pandemic for the left US eight months and I think that Thats why we re establish guidance. So when we start looking at where we're at what cushion we have on our covenants.
We know that business levels should be up next year at some level I would imagine that we will return to around that $90 million ish range of capital. You are right. There is a lot of that that's tied to sell development and landfill construction and thats critical we need to do that so.
Some of the spend is part of a multi year effort that actually may carry over into 2022 at our large Michigan based landfill very difficult construction. There. So I imagine that will be around that $90 million next year on year, but it also depends it really depends on how we're seeing the old.
Overall.
Outlook for 2021 at this stage and we will adjust accordingly on that we will never never.
Skimp on the landfill side of things, we cannot run out of space, We got to keep those up and operational so yes.
Yes, yes, absolutely and then just my last one and this is a little bit broader question about just capital allocation, but.
Number one do you intend to reinstate the dividend and if so what do you need to see a number to.
Where should we think about free cash flow being allocated over.
Over the next few years do you do you anticipate it just kind of getting swept to pay down debt do you see acquisitions, just any broad thoughts there I think would be helpful. Yes.
Yes, so a very very good question. So the crystal ball I'm looking through right now which is murky at best is we do intend to reinstate the dividend that facts and circumstances will determine whether we reinstated dividend or go to some other capital.
Return of capital to shareholders share buybacks things like that but that's our intention.
It's really dependent on when we when were comfortable operating in our covenant level that will get adjusted in 2022 back down. So those are factors that come in if we if we get back to pro pre co bid levels.
Of cash flow expectations.
Are we will continue to pay down debt, but we would then start looking at potential acquisition opportunities and that we will continue to always invest organically and ourselves. We take advantage of that every single year and we're still doing that we did it this year, even under the capital constrained conditions that we've done we're looking at a lot of great things next year.
Or are planning to use up some capital and where we try to try to get a lot of mileage out of as our maintenance side and so if we can if we can get some more.
Duration on the maintenance side and get by and reinvest that in growth opportunities. That's what we try to accomplish.
Okay, well, thank you very generous with your time, thanks, alright, Thanks Tyler.
As a reminder, if you would like to ask a question. Please press Star then one.
Our next question comes from Jeff Silber with BMO capital markets. Please go ahead.
Thanks, So much I just got a couple of quick ones hopefully.
In your prepared comments, you talked about potentially the energy waste side of the business finding a bottom I am just curious what makes you confident to make that stake what are you seeing.
Well, we're actually seeing.
Despite despite the sequential decline through the quarter, we saw improvement we saw opportunities with remediation investments that were occurring that we're creating volume and then when you started just start talking to looking at what our customers are doing although it's very small in numbers, we are starting to.
The rigs and activity returning to the market.
If you listen to some of the larger players that continue to consolidate down and what their plans are for next year, even though that they are restricting overall capital the areas in which we operate in they continue to be bullish in and they continue they're continuing to have indicated that they plan to make investments in there and so.
So that's why I think we found bottom on that.
The fact is we will see how it all translates into the overall oil markets in the in the coming months and quarters.
Okay. That's helpful and you talked a little bit about some of the geographic area in terms of trends. There you mentioned the Gulf Gulf Coast. I think you have more exposure in Texas, and Louisiana, If I remember correctly, but I'm. Just curious have you been impacted by the hurricane that all either positively or negatively yes.
Yes.
Fortunately our facilities and our people have not been materially impacted by the hurricane season, and that's been a blessing for us ecology on that as far as business goes there has been some incremental business on emergency response, but it hasn't been a needle mover.
I think that the couple of the Hurricanes that went up through Louisiana.
We saw some incremental volume on on.
On it but there hasn't been a needle mover there from that perspective, but.
Those do happen from time to time actually much that most of our work we did hurricane was over in Florida.
Due to Sally.
Yeah kind of forgot about that there's been so much else going on since then but I appreciate that all right. Thanks, so much for the color.
All right. Thanks, Jeff.
This concludes our question and answer session I would like to turn the conference back over to Jeff Feeler for any closing remarks, yes.
Yes, I'd just like to thank for those that.
Our attending today and hope you stay safe.
Through these unprecedented conditions and look forward to updating you at a conference in the near future or at our next quarterly call.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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