Q4 2020 Clean Harbors Inc Earnings Call
Yes.
Greetings and welcome to the clean harbors fourth quarter 2020 conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Michael Mcdonald General Counsel for clean harbors. Thank you Sir you may begin.
Thank you Christina and good morning, everyone with me on today's call of Chairman, President and Chief Executive Officer, Alan Mckim, EVP, and Chief Financial Officer, Mike battles, and SVP of Investor Relations, Jim Buckley slides for today's call of posted on our website and we invite you to follow along.
Matters, we are discussing today that are not historical facts of concerning 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. So very in 'twenty four 'twenty 'twenty, one information on potential factors and risks that could affect our actual results of operations is included in our SEC filings.
The company undertakes no obligation to revise or publicly release the results of many of revision to the statements made on 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 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 on todays news release on our website and in the appendix of today's presentation.
Yeah.
Now I'd like to turn the call over to our CEO Alan Mckim, Alan Thanks, Michael Good morning, everyone and thank you for joining us.
Starting on slide three we concluded 2020 with a strong fourth quarter, our environmental services segment outperformed our expectations driven by a combination of factors, including the level of high value waste in our disposal network weighted unexpected COVID-19 decontamination work and ongoing cost.
Rolls.
Total fourth quarter revenues were in line with expectations as our safety Kleen business remain constrained by the effects of the pandemic.
Adjusted EBITDA in Q4 increased to $136 1 million, which included $5 6 million in benefits from government programs, primarily from Canada.
For the full year adjusted EBITDA grew by 3% to $555 $3 million with annual margins growing to 17, 7%.
We generated record adjusted free cash flow of 265 million.
A noteworthy accomplishment considering the economic disruption caused by the pandemic.
Without question. The success, we achieved in 2020 is a direct result of the dedication.
<unk> ability and perseverance of our exceptional team.
2020 was a challenging year on many levels like the publicly acknowledge all of the employees across our organization.
Particularly those on the front lines for their outstanding work this past year.
For you, we delivered of essential products and services to our customers. Despite facing many obstacles as the pandemic disrupted how we normally conduct business and we did so safely all year.
Turning to our segment results beginning with environmental services on slide four.
Revenue, while down year over year of do it away market due to market conditions was up on a sequential basis.
Typically Q4 is a seasonally weaker quarter for us, but the $18 million increase from Q3 as evidence that many of our markets are on the road to recovery.
We also saw a strong disposal recycling volumes to close out the year.
Adjusted EBITDA grew by 13% from a year ago with margins up nearly 400 basis points.
This was driven by a combination of on business mix cost savings and $3 9 million in benefits from government assistance programs in Q4.
Revenue from our COVID-19, decon work totaled $31 million in Q4.
For the full year, our team completed nearly 14000 responses and wasn't of central Resourcing and protecting our customers' people and facilities.
In Q4, we benefited from a record level of drums collected as well as some high value complex waste streams, we received into our network.
This resulted in an average price per pound of increase of 16% from the year early of period, when we saw more bulk streams.
Instead of on reach and utilization in the quarter was 84% due to a higher than expected number of maintenance days.
Landfill volumes were down 37% in the quarter as the lack of remediation of waste projects opportunities intensified with the resurgence of the pandemic.
However, our strong base of landfill business, largely offset that decline with a 42% increase in our average price per ton.
Moving to slide five safety clean revenue was down 15% from a year ago, but was flat sequentially as the ongoing recovery offset normal year end seasonality.
Vehicles miles driven had been on a nice upward trajectory throughout the summer, but plateaued a bit in Q4 with the COVID-19 surge, resulting in some new local restrictions in areas, such as California, and all across Canada.
Most of our core services in the SK branch business were down year over year as a result, but flat from Q3.
Safety claims adjusted EBITDA declined 21%, mostly due to the lower revenue and business mix. This.
This decline was partly offset by our cost reduction initiatives as well as the government assistance programs that provided $1 4 million of benefits in Q4.
Wasteful of collections were 49 point no excuse me for 49 million gallons from Q4 with a healthy average charge for oil given the lack of available outlets for generators.
On the SK oil side, we saw a typical seasonal softening of the demand for base based on oil and lube products. However.
Due to the lower production levels in the traditional of refinery space available base oil and lubricant supply shrank in the quarter, resulting in a rising price environment that should benefit us here in 2021.
Percentages of blended products of direct volumes can as expected.
And consistent with prior year.
Turning to slide six.
Looking back at 2020 from a capital allocation standpoint, our strategy due to the pandemic was focused on cash and capital preservation, which served us well.
Capex in Q4 was slightly higher than the prior year, but our full year of spend was down from 2019.
Moving forward, we expect to focus on internal growth capital on our plants and other assets that we believe generate the best returns.
From an M&A standpoint, our opportunity pipeline is healthy as businesses emerge from the pandemic and we gain a clear line of line of sight on our end markets.
We prudently increased our level of share repurchases in Q4 and had an active repurchase program for the year and Mike will provide the detail on our buyback shortly.
Looking ahead, we're beginning 2021 in excellent shape, both operationally and financially.
The markets, we serve on the upward trajectory.
For our lines of business that had been held back by the pandemic such as waste projects and remediation, we expect a measurable recovery this year.
2021, we expect to pursue growth opportunities to our core suite of service offerings and by capitalizing on market conditions and Mike is going to talk about our new sustainability report in a moment.
But let me say that we expect to take full advantage of the growing market acceptance of our sustainable offerings in 'twenty and 'twenty, one and beyond.
We provide a broad array of green solutions that go well beyond our role as the largest collector and recycler of waste oil.
Within environmental services, we entered the year with higher deferred revenue and given the availability of waste in the marketplace.
Expect strong incineration performance in 'twenty and 'twenty one.
We anticipate our offerings within industrial services in Tech services the growth from last year.
We expect field services to generate $25 million to $35 million of Covid related revenues in 2021.
Within safety Kleen, we remain below normal demand levels as we kick off 2021. However.
However, later this year, we anticipate of steady recovery in the SK branch business.
For the safety Kleen of oil are we refineries are producing well and as I mentioned pricing for both base oil and blended products as favorable to start the year.
We will continue to actively manage our charge for oil rates, while focusing on growing collection volumes to supplier, we refinery network and take advantage of market conditions for recycled fuel oil.
In summary, while 2020 did not go as we originally envisioned for our 14th anniversary due to the pandemic, we did achieve record adjusted EBITDA and adjusted free cash flow of thanks to our amazing team.
As I look at 2021 of the underlying dynamics in both our operating segments remain positive.
And we expect a strong sales growth year with healthy free cash flow as a result.
Anticipate another great year for the company in 2021.
So with that let me turn it over to Mike battles the Spike.
Thank you Alan and good morning, everyone before I take you through the financials, let me comment briefly on our first ever sustainability report, which is available on the IR section of our website. We're proud of this document, which we created based on the sustainability accounting standards Board framework. The document highlights the integral role that sustainability plays in our business decisions.
As well as our environmental social and governments goals and benchmarks for 2013.
The adequate page of the report shown on slide eight is an overview of some of the of our ESG benchmarks.
I want to reiterate the point the Alan made about ESG and sustainability as foundational to our business for many customers. We are there of sustainability solutions.
When companies generate potentially harmful byproducts, they called clean harbors, the same sort of remove and dispose of them.
When the accidentally released chemicals into the environment they call clean harbors the help clean it up.
When they have waste oil solvent precious metals, Inc, or pain, thank all of clean harbors to recycle.
The New report also highlights the vital role our employees play in our performance, we strive to create a diverse and inclusive culture, one that values the unique backgrounds perspectives and experiences of our people.
We are committed to building a sustainable culture training programs that enable our employees to have to enjoy long and successful careers at clean harbors.
Encourage everyone to take a look through the report and provide the detailed picture of our closely intertwined sustainability is with our entire organization culture and business model.
Now, let's turn to slide nine of your income statement.
We ended 2020 on the high note with another strong financial performance.
Yeah. If you asked me back in April when the pandemic began what level of revenue adjusted EBITDA and adjusted free cash flow. We would have delivered this year. These would've not been the numbers.
Our Q4 of adjusted EBITDA results exceeded the guidance we provided in November.
Revenue declined 9% year over year, but was up from the third quarter. Despite Q4, typically being a sequentially lower quarter due to seasonality.
Our efforts to control costs and grow our highest margin businesses combined with some further government program assistance.
All of it in 180 basis point improvement in gross margin.
Adjusted EBITDA grew 3% to $136 1 million.
Our Q4, adjusted EBITDA margin rising 190 basis points from last year speaks of the effectiveness of the actions we have taken this year.
We have improved our adjusted EBITDA margins on a year over year basis for 12 consecutive quarters for.
For the full year adjusted EBITDA margins grew 17, 7% to 17, 7%.
If you excluded the $42 3 million of government assistance those margins would've been 16, 3%. We're at 50 basis point improvement from 2019.
SG&A total costs were down in the quarter based on a lower revenue and cost controls, but on the margin basis were essentially flat.
For the full year SG&A as a percentage of revenue was 14, 3%, which beat our target of 14, 5% for.
For 2021, using the midpoint of our guidance range, we would expect SG&A to be up in absolute dollars from the prior year and essentially flat on a percentage basis.
Depreciation and amortization in Q4 was down to $71 4 million for the full year, our depreciation and amortization was $292 9 million, which was within our expected range.
For 2021, we expect depreciation and amortization in the range of $280 million to $290 million.
Income from operations in Q4 increased by 18%, reflecting a higher gross profit cost controls and mix of debt for the.
The full year, our income from operations rose, 10% of $251 3 million.
Turning to slide 10, we concluded the year with our balance sheet in terrific shape cash and short term marketable securities at December 31.
Were $571 million up nearly $40 million from the end of Q3.
Our debt was at 1.5 dollars 6 billion at year end with leverage on a net debt net debt basis at one eight times, our lowest level in a decade.
Our weighted average cost of debt is four 2% with a healthy mix healthy blend of fixed and variable debt.
With the recent revolver, we put in place we have no debt maturities until 2024.
Turning to cash flows on slide 11.
Cash from operations in Q4 was $113 2 million cash.
Capex net of disposals was up slightly to $43 6 million.
That combination resulted in adjusted free cash flow in Q4 of $59 6 million.
For the year, we hit our net capex target, excluding the purchase of our headquarters with $165 6 million of spend.
That helped us deliver record annual adjusted free cash flow of $265 million, which was towards the high end of our guidance range for.
For 2021, we expect net capex in the range of $185 million to $205 million, which is higher the prior year.
Our net capex as a percentage of revenue ranks as one of the lowest amongst our specs to waste peers.
During the quarter, we increased the level of our share repurchases as we bought back 500000 shares at an average price just under $71 for a total buyback of $35 million.
In 2020, we repurchased slightly over one 2 million shares.
All of our authorized $600 million share repurchase program, we have just under $210 million remaining.
Moving to guidance on slide 12 based on our 2020 results and current market conditions. We expect 2021 adjusted EBITDA in the range of $545 million to $585 million.
As we noted in this morning's release, we are revising our calculation of adjusted EBITDA to exclude stock based compensation to be consistent with all of our company's loan agreements and facilitate comparison with industry peers.
That amount in 2021 should be about $16 million to $18 million compared with $18 5 million in 2020.
Looking at our guidance from a quarterly perspective, we expect Q1 adjusted EBITDA using our revised definition to be 5% to 10% below prior year levels. Given the record Q1 results. We posted in 2020 prior to the pandemic, taking hold and the deep freeze we are experiencing in the Midwest and the Gulf.
Here in February.
Here's how our full year 2021 guidance translates from a segment perspective.
And of environmental services, we expect adjusted EBITDA to decline in the mid single digits on a percentage basis from 2020.
We expect the benefit from growth in profitability within incineration, a rebound in the majority of our services businesses, along with our comprehensive cost measures.
But not enough to fully offset the decline in high margin decontamination work as well as the large contribution from government assistance programs in 2020 that totaled $27 1 million in this segment.
For safety Kleen, we anticipate adjusted EBITDA to increase in the mid to high single digits on a percentage basis from 2020.
Despite the fact the segment received $12 2 million in government systems last year.
We expect of mild rebound in the branch business weighted towards the second half of the year post vaccination at the same time, we expect SK oil to deliver a vastly improved performance of 2020, given the current base oil industry supply dynamics as well as our ability to aggressively manage our re refining spread.
And collect more gallons of waste oil.
In our corporate segment, we expect negative adjusted EBITDA to be flat with 2020, which includes $3 million of governance items.
For 2021, our EBIT guidance assumes receiving $2 million to $3 million of Canadian government assistance, we are.
Not assuming any additional care of the money in 2021 at this time, but we are reviewing the new program.
Based on our EBITDA guidance and working capital assumptions, we now expect 2021 adjusted free cash flow in the range of 215 of $255 million.
We believe this puts us on a great position to execute on our capital allocation strategy.
In summary, although the pandemic is still with US we entered the new year with strong momentum and multiple service businesses and most importantly across our facilities network.
And the industrial production in the U S is back on the rise by all indications, particularly on the chemical space.
Chemical activity parameter published by the American Chemistry Council show of the entry of the industry levels had been climbing sequentially from May to January and January was the first time in 10 months that the activity levels were above the prior year, which is of great sign for us.
In addition, our re refinery business is off to a great start given the.
Current market conditions.
Expect some of the project and turnaround work that was pushed out to 2020, the benefit of benefit us this year and the overall sales pipeline remains strong.
While we are seeing Covid cases declined sharply in recent weeks, we anticipate continued opportunities for near term the decontamination work and disposal of vaccination waste volumes overall, the number of favorable industry and regulatory trends should support our business moving forward.
And while we don't give specific revenue guidance, we certainly expect of return to topline growth in 2021.
With that Christine Please open up the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is on the question queue.
The press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Hey, good morning, guys Hey.
Hey, got it hey.
Hey, Mike I appreciate all of the guidance, but I do want to come back to the Q1 guide real quickly. So you mentioned at the Q1 was a really good quarter. If I actually go back and look at my notes, but you also talked about these winter storms is there any way that you could kind of quantify the.
Amy costs downtime, how much of a drag that is gonna be.
Yes, Tyler so we're just experiencing it right now like the rest of the kind of rest of our competitors are at and certainly has an impact in the in the golf and in the in the in the in the.
The Texas and at the end of the day, we think those plants have been down for a bit I think it is going to come they are coming back online kind of today and tomorrow I don't think it's a huge number and also as you know Tyler when one of these things happen and you see it in the paper and Bloomberg and the other areas in pipes of cracking and that's going to create spill opportunities for clean harbors.
There to help clean it up and so.
That I don't think it's a huge number I think it is it has a number of certainly in Q1.
Okay interesting. So Alan this is the bigger picture question. So I'm curious what you mean by when you say that you're seeing customers shifting towards you know a greater environmental responsibility that aligns with your offering that was something that you guys put in the press release. So is that of comment about captive in <unk>.
<unk> may be shutting down or plants being more stringent on their cleaning I guess my Big picture question here is an a clearly more ESG focused world.
You think that that translates into a better growth algorithm for clean harbors than maybe it has in the past.
I do I think debt.
You know what the people are becoming more and more aware of.
On the environment and certainly we're hearing more about you know the the warming of of the planet and the effects of missions and.
I think when you look at our ESG report.
It really is fantastic about how we are.
Really a net benefit or from.
From a greenhouse gas standpoint, and I think people will realize that whether it's outsourcing waste from their own captive or it's relying on us to recycle solvents and oils and so many other things paint waste and the like I think more and more of our I think our offerings would be.
Prioritized or accepted because of that the green nature of of what we're doing.
Yeah No. That's that's very helpful. And then my last one just quickly on Capex. So I think you're calling it for them and I call. It gross capex of 200 million I look back over the last few years and you exclude the headquarter buyout, it's been sitting around there. So as we look out is that of pretty good placeholder and then Alan you mentioned some of those I think internal.
Growth opportunities some of that spend so how do we think about cash.
Capex, maybe on down the road [noise].
Balancing some of those investments.
Hey, Tyler I'll start with the first for Alan can talk about the growth Capex. So you know as we mentioned are our of Capex at the percentage of revenue.
One of the lower amongst the the industry and that that stays there six to six 5% I think there is a pretty low pretty low and I think as revenue grows I think that will continue to make those capex investments.
Did that that excludes any type of large incinerator and that's the big Capex. That's out there if that were to happen, we certainly would call that out.
Yeah, Okay perfect. Thank you.
Sure.
Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Good morning, everyone in the.
Great execution to your team on the front line up in a challenging year.
I wanted to touch a little bit on the capital allocation question here I think.
You know clearly youre extremely cash rich you know Paul.
On the toddlers point, there isn't the big Capex and ambition for.
For 'twenty one.
Can you just give us a little bit more insight on how you stack everything up in terms of priorities here.
The repurchase.
Some color on the M&A pipeline.
You know clearly this isn't you know an optimal leverage position for the company at this point looking at growth.
So.
What do you want investors to expect the chicken.
For the next 12 months to address that.
I think I think our priority really is the acquisition. So I think of the company has shown that it has done some some really fantastic deals to be able to acquire.
Acquired company Who's moving to our platform and really take advantage of the scale that we have and I think that would be at the top of our list I think over the past year.
Clearly we had been.
The impacted.
On our ability to to go through of normal process of due diligence and integration and in any of the way that we typically would go about an M&A, it's really been disrupted because of the pandemic and we really think that you know with.
With this pandemic don't getting behind us as I think many people feel like it is over the next few months.
Net debt, we can be more aggressive and and I think that would be the the key thing that you should be looking for with the use of capital this year.
Okay. That's very helpful and then can I.
Pushed a little bit more on the question around ESG.
And related tailwind with respect to the close to the of offering.
Looking at where performance plus of nickel power are now.
And the opportunity for you know of a cycle oil the greener product to get more penetration in the market how big of a priority is debt for you in this next year or two to really push that direct sales percentage up for it you see any traction.
Because of some of the sustainability of consideration and the.
And what do you think investors should be expecting in terms of the the trajectory for that direct sales to grow.
Yeah, I think you'll continue to see us improve in that area I think.
The department of Energy finally came out with the study that we have been waiting for it to be updated from 2006 for 2008.
Which.
It was very favorable to.
The use of of waste oil into recycled lubricants and base oil and there were about 18 recommendations of commodity that dose study that just came out last month and our hope is that this administration will take a number of those recommendations and implement.
The implement change.
Whether it would be on incentives or.
Getting government to be a larger buyer of these we refined products. The government today is the large customer of ours, but predominantly army and so many of the other agencies.
Would be strong buyers of our re refined products. So I think youre going to see of real favorable movement with the this administration, taking some of those suggestions and moving forward with them.
Great looking forward to that thank you so much thanks Tom.
Our next question comes from the line of David Manthey with Baird. Please proceed with your question.
Yeah, Hi, good morning, guys. Good morning, Hi, David.
So incinerator utilization used to hit the 90% range at higher periodically, but really over the past two or more years. It's the only done so in one quarter.
I'm wondering is there any structural reason why this is or should we expect that to continue.
But just any help on that it seems like it was it used to be 90% pretty regularly and now it is rarely so yeah.
Good day. This is Mike I'll take a shot at it for me I think what's happened on the past couple of years as those kind of higher margin streams of come into the network and they are the reason why they are higher value of they're harder to destroy and they do take some time in the <unk> and that has has prevented us from doing other types of low margin flow jobs and and overall, it's a good thing Frank.
And my my view as I've said time and again in debt.
Many of these high he's anywhere in that range is good and then from there just the mix of business that goes from there.
Certainly nothing structural and we.
We certainly are nowhere that we'll know where the money is being made and know where the value is and take very good care of those point of range.
Okay, Yeah, it sounds like a high class problem that's good.
And second.
In the release, you said with fewer waste oil outlets available market rates charged for used motor oil remained high can you outline the any near term cyclical issues, but also of the longer term secular factors that are at play but behind that statement.
Yes, I think I think there's just been such a glut of refined products as you know the refinery the.
The.
The major refineries out there certainly have scaled.
Scaled back a lot of their plants and with that.
The reduction in fuel and gasoline and subsequently base oil. So that's been positive for our base oil business.
But as it relates to the jet fuel, particularly kit, which is basically kerosene.
We've seen a lot of that surplus.
I'll go into the fuels market in the bunker market and particularly with I'm.
Going to 5% sulfur.
It appears to us that what we've seen is those surplus gallons going into the fuels market rather than the aviation market and therefore, the outlook for recycled fuel oils like the surplus of industrial tools that we see has has shrunk and some of it might have been pandemic related.
But I think more of it was just a change in how the market is moving with I'm on.
So I think this year as of.
As of the airline industry recovers and everybody's guess on when that's going to take place on how fast it's going to happen. We think we're in a really good position here too.
Again see our base oil on our re refined oil become you know of real attractive.
Outlet for waste oil.
Sounds good thank you very much okay. Thanks, Dave.
Our next question comes from the line of Hamzah, Missouri with Jefferies. Please proceed with your question.
Hi, This is Mario port of La <unk> filling in for Hamzah I'm.
Just a question on on P fast with the new head of the EPA could you just talk about whether you think of legislation gets done quickly or of timeline, you think that that could happen in on regarding piece of that and then.
Any updated views are your best guess on what will happen. There I'm. Just wondering if you have any high level thoughts on potential revenue opportunities or other how much of the pie you thought when you think of you guys can capture if that becomes an opportunity and then alternatively do you view P. Fast legislation is in the negative or neutral or.
<unk> are positive for the solid waste companies.
So I'm not going to comment on the solid waste companies all of that I'll, let the solid waste guys coming on that but I would say that.
I think that debt the Democratic House Senate and the White House is going to move along piece of that legislation much faster than <unk>.
And I know the scenario.
And I think that we know that DFAST is dangerous we know that it ultimately will get some form of hazardous designation.
The challenge today of the PFS is not and so we got to work through that but I do think that I do think that is certainly.
It's not really in our budget of guidance numbers today, but certainly I think that's the long term impact in the industry and regardless of how it needs to be disposed by the true landfills.
Close the landfills for incineration for water treatment and we have all of those solutions. So I think we're in a really great position to do address the PFS.
The feedback issue as it becomes more and more real.
I think from a legislative simple it would be positive for us, but absolutely absolutely of negative at all to account to us on at all at this point.
Great and then.
Just following up on the M&A question.
I mean could you could you give us a little more detail on where you are particularly focused in 2021 and then maybe you can comment on on what valuations are looking like right now.
Yes, certainly the waste disposal side of our business you know our tech services business.
Which now includes.
The safety Kleen environmental.
You know that that is.
And the area, where we have we think some real opportunities to continue to grow to drive more volume across our network.
To leverage our recycling.
Assets, we have last year of put in significant capital investments into our incinerators to expand our capacity.
Some of it includes shredding others are just more tankage and.
More feed systems better feed systems.
You'll continue to see us invest more.
In our end disposal and recycling.
Assets, and so expanding our collection network and the growing our volume, which we've been really successful looking at the you know the.
The fourth quarter was up about 50000 drums. So I think when you look at our deferred over 70 million of kind of speaks to just the volume of waste that we have in the network and the.
That is really where we want to focus our M&A activity on is to continue to grow that that side of our business.
Got it and then just one more of it I'll turn it over.
And just some clarification I might have missed it earlier on the call or in the prepared remarks, but.
Could you just remind us what you're thinking on on COVID-19, clean up or how much is baked in the 2021 and then can you also works for remind us of what the what the margin profile is for for that business sure. So just so it's about $120 million for 2020, and we've said $25 million to $35 million of revenue.
In 2021.
That's a reasonable estimate.
The margin profile is the high margin business.
The mid to high and opportunities.
Great. Thank you so much.
Thank you.
Our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question.
Thank you very much.
Can we.
Two of little bit of a waterfall, if we could to pool take care.
Revised so the $5 73 on a like for like basis to the guidance.
EBITDA in the waterfall of the unknown there it doesn't repeat.
There was a reduction and decontamination and then the sort of recovery part what what are those pieces to bridge, the let's say the midpoint of.
2021.
Yeah, Michael I'll take a shot of that so that the two big kind of headwinds we have going into 2021, and we're assuming that the decontamination work drops precipitously from and the 120 million. We did in 2020 day of let's say a midpoint of $30 million in 2021, so that that $90 million drop.
Of our revenue is going to take a take a number of 30%, 35%. It's gonna have a big impact on our on our earnings and then also we did we did get a 42 million of of government funding both in the U S. But the majority of <unk>, Canada.
It drops also from lets say 42 million debt to two or two in the hands and so those are let's say debt to kind of monitor headwinds that we're gonna have to dress on here in 2021, and that's the good thing I'm on.
I'm really bullish on as I said in my prepared remarks about the.
Our end markets and the growth on our end markets, whether it be in and the waste projects and remediation whether it be household adds as waste as an analyst day on the Es side and of course on the SK side. The re refineries were down from last year, we shut them down because of lack of demand and so those come back on and we should have a really good year and so.
I think that you look at the numbers on an apples to apples basis, it's down a little bit and you're like well Gee, that's interesting, but really it's sort of the kind of debt. The one off of unique things and then in the overall business growing again, which is really what we needed to do.
So if I follow the math and it's the baseline starting at 500 goes the midpoint of $5 45. So you are up 8% on a like for like basis, that's right about that yet okay, and so am I thinking about this number correctly, if I look at if I take the 120 out of 20.
And then compare revenues year over year, you're down on almost $390 million, that's right that $3 90 as would you call. It all pandemic related because of whatever got disrupt the delayed deferred that's all pandemic related absolutely. Therefore is there on any assumption in your outlook of.
Of some of that already being recovered.
In the guidance and the and how much are you assuming and therefore, that's the potential upside surprise the pace of which you read.
Resume that same 390 of activity that's absolutely the debt you've got exactly right. It is it is that is that is the organic growth number. If you will taking out the decon work and that is debt that is the X factor is how fast do people get on the road again, how fast do people kind of kind of change of of motor oil again that as you know the.
The environmental services business did pretty well and we're going to lose the decon work, but then we're also going to we're going to pick up let's say household hazardous waste stays where its been on hold for months and those I think that's sort of kind of a modest growth in that business and I think we should also mention that.
We gave away quite a number of price concessions to a lot of our top of accounts.
And when the crude oil crashed you know in.
On the second quarter.
A number of of our customers came to us looking for of concessions and certainly we gave those and we've been working with our customers but.
Our goal this year was two <unk>.
<unk> of our pricing again, and we've recently raised prices on our incineration business, particularly because of.
Just the sheer demand and volume.
So I think there is from price improvements in there both on the the sessions getting back to normal and the price increase that's absolutely the case you're right.
And so how would you want us to think about that $3 90, how much of that 390 and lets the supply the corporate average margin.
Call. It 17 of half of that how much of that in the.
The low to the high of guidance.
You know the high end of the guidance, we'd get all the way back there on the low end of.
These people on sort of that okay. So that's the way to think about what that opportunity is and then can we talk about some of your metrics. You you all have done a really of job of moving the free cash flow is the conversion of your EBITDA out of the thirties into the forties here.
You're in the sort of low 40% of EBITDA now 43 or 45.
Is that sort of the where it is and now it's all about the sustainable growth of the doing the asset utilization and pricing or is there still improvement.
And the actual ratio.
You know Michael I'm sitting here with my CEO Youll never say we're done.
He would never acknowledged though now we're in great shape, just keep it going right I do think there is opportunity there. The team does a great job of kind of you know we have five refurbishment jobs. For example, we build our own trucks theirs and we're going to continue to do that maybe expand on that theres opportunities here to drive more free cash flow better working capital management better controls of inventory and the.
<unk> I mean, there's I don't think there's the I think cash conversion for those outside the beat there.
So if you thought about that that was the setup I knew Alan was sitting there going on of course, it's going up where we're kind of go what's the practical.
Yeah, our goal is to get to $300 million in free cash flow and I don't think I'll have to be true to earnings and so I think that were going on we have as part of our incentive plans. We all have targets to lower on receivables, we all have to target the lower inventory and to manage our working capital better and I think there's opportunity there using systems and processes.
Suggest that.
And if I thought about that for that $300 million as a percentage of of your EBITDA. What do you think that is.
That's the future time will tell how fast, but I do think that we've had great trajectory as you know we've had a 9% CAGR on free cash flow for the past few years and that should continue Okay. And then lastly for me on safety clean the oil what was the plant production.
Volume in 'twenty and are we back to $150 million is what should be produced in 'twenty. One so I can compare those two numbers.
I don't have the historical number but all plants are kind of fully operational on here in 2021 for.
21, you assume the do you should all things being equal put out of 150 million gallons of base oil.
Probably a little bit less in 2019 is still because the R&D.
That's why instead of being still have an impacts on on overall miles driven but.
We certainly are.
As you know we shut down for all of our plants for the number of weeks.
Because of it.
Several for months because of <unk>.
Not enough oil to collect because of all the shutdowns and not enough oil to sell.
Because of the same so I think youre going to see that come back nicely. This year.
Okay, and I'd say, one last one I just wanted to clarify on P. Fast when you don't actually need legislation if the EPA puts out of the M. C. L. And then enforces to the mcl that in itself will drive the part of the market. That's most important to you which is of remediation the legislation would be more about what might happen on the drinking water side.
Would you agree with that yes, I think that's true and we're certainly seeing opportunities we have a pipeline of PFS of opportunities for sure.
And we see customers realizing that they need to get ahead of the that and again most of this debt. We see is a lot of it is a phone fire related.
And the fire phone related I should say and.
I think those of the natural locations, where they're trying to quantify and understand what the remedy is going to be but the legislation or EPA mandated certain changes I think it would be helpful to have a hell of a framework.
Work to work around.
Got it. Thank you so much and good luck.
Thanks, Mike.
Our next question comes from the line of Jeff Silber with BMO capital markets. Please proceed with your question.
Thank you so much I was looking over the transcript from last year's call at this time and obviously it was before the pandemic really had an impact but there was a lot of conversation about I'm of 'twenty 'twenty.
Talk a little bit about this on and I know it may be tough to quantify but.
Is there any positive impact that you're building into your guidance for 'twenty and 'twenty one from that.
Not yet no it's really been such a disruption as you know.
Particularly with just.
The you know.
On the jet fuel market, particularly the glut to net fuel so I think I think until that works.
Works itself out of it it's really difficult to quantify right now.
Okay. That's fair enough and then one kind of housekeeping note.
Mike can you talk a little bit about the change in the adjusted EBITDA EBITDA calculation for next year I do understand it but why now I mean, the peers have been doing it for a long time, it's been in your leverage agreements for a long time, what precipitated the change yes, Jeff. Good question two things first of all we did change kind of all of our debt agreements and the last one.
<unk> was the change was the revolver, which we did in November and so that was that we thought that was a good time to do it and we thought the first of the year would be a perfect time to do it to set expectations appropriately and those were kind of the driving reasons.
Okay, Great. That's very helpful. Thanks, so much okay day.
Our next question comes from the line of Larry Solow with S. T of Securities. Please proceed with your question.
Great. Thanks, guys. Good morning, and congrats on a really good year in a challenging environment for sure.
We're just absolutely just a few questions on just on the mix on the pricing you mentioned, the Alan you're going to perhaps for them up some pricing on the incinerator on the disposable business.
Trying to parse it out with the obviously mix is driven.
Great improvement the last few years and even this quarter.
Looking at the quarter first was there anything unusual with the 60% increase the price per pound of an incinerator side on over 40 on the landfill.
Unique waste streams in there and I think there was something that arrived late in the third quarter that sort of benefit this quarter and in the second part of the question is how do you as you look out over the next few years do you do you see sort of some of these gains and mix at least slowing can you continue to at least maintain this pricing and maybe improve it slowly over time.
I'll start now and feel free to chime in the ER.
Larry This is really just a continuation with sort of been happening all of last year were kind of high margin waste streams as going after aggressively marketing in going after these waste streams and achieving getting these waste streams into our network Alan talked about drum volumes from binds very profitable business for us of Yep.
The lab ramped in Q4, and I don't see that I don't think that's unique of Q4 thing I think that the.
The price per pound of great, probably a little higher than normal, but we've had this with that double digit.
Kind of pricing all year, there and that just continues here in Q4, I don't see that changing I know, we talked to the team and they tend the pipeline strong to continue to get these kind of high margin streams and I don't see that kind of changing its certainly in the next in the near term and.
And I think just two things that I would add to it is that we're seeing new generators right and so you've ever had the chemical Renaissance where the.
The low natural gas pricing has really brought back a number of plants and manufacturing for the states and so we're seeing.
The new plants now starting up new waste streams coming into the market and some of those are real.
Difficult streams to handle right.
We're also seeing captives, reducing oh and also being impacted from the pandemic and subsequently maybe outsourcing.
More of their material than they've historically had.
Because of the pandemic or B b.
Because of the maybe the demand on on some of their operations. So there has been a little bit of that going on on the read on.
On the cap the side, so I think both of those things really help us from a mix.
And the average price per pound.
And on the captive.
As they start to outsource more does this.
The lead them towards the full closure of their captive of it I would think of the outsource more of maybe that's even less efficient for the sort of double paying for fuel.
The most captives have been built of sort of an end of the pipe of their production facility and many times, it's because of the difficult types of waste streams that they are of that they actually put that kind of capital investment in and.
With all of the changes that have gone on in the chemical industry of the acquisitions of divestitures the impact on regulations for those plants is certainly driven some of them to look at outsourcing as well as a reduction in some cases of volume is being handle that those captive sites, making it economical to.
And I will look at you know outsourcing it rather than who can continue to run of captive plant, maybe yet 30 of 40% utilization. So I would say those of the things that are driving that change Larry.
Okay, and just switching gears real fast on the safety clean side, you mentioned collection prices remain.
Remains high as the.
The price of oil sorts of come back up or at least from the beginning of the 'twenty one it certainly rebounded the.
The does this face more challenges that the maybe the oil places don't want to necessarily give you. The you know the oil it's at the high price of the underlying volume is increasing.
It's really we manage the spread as we said before and right that.
That would sort of put some pressure on on our charge for oil program, but but I think that at the risk of what we need is demand to come back and we do see that happening here in 2021.
Okay, and then just lastly on the cost cuts and whatnot. Obviously in 2020, I think Keith you kind of sort of you know.
Expedited job on sort of keeping the cost out of it as revenue sort of swooned in the middle of the year.
I would think this makes for a little bit of a difficult comp as things come back, but it does seem like you guys or some of this has been sort of offset by productivity gains of maybe you're not bringing back all of your staff, where maybe there's less third party of more direct expenses of direct employees, perhaps you could just give us a little more light on that.
A little bit of both right.
We have learnt.
The operate with a lot less people and a lot of people working from home and so we have certainly been able to reduce cost in many areas of the business and we think that those costs could continue to be.
At the at those reduced levels and the.
And that's why I think why you're looking at SG&A and some of the benefits we see flow through there. This year like did you want to add yeah, just going to say Larry that you look of 2021 of things like that we got a natural benefit for like health care for a teeny or commissions.
We all come back with with the with the economy coming back and people being able to travel and and and and people hitting the incentive target then getting commission payments debt, that's great, but that only happens if the economy does come back if it doesn't come back I think that we will still stay at these lower levels I also would say that.
And Alan and the team did a good job of of using the pandemic of leveraging the pandemic of look at third party spend and drive and do a lot more things internally, whether it be third party subcontractors third party labor third party trucking the knows those costs. They don't come back I think those guys stay out of the business and we do have definitely use the <unk>.
<unk> as a catalyst to drive some of that on out of those cost out of the business.
Okay, Great I appreciate that thanks, guys. Thanks, Larry.
As a reminder, if you would like to ask the question Press Star one on your telephone keypad are net.
Question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question Hi, Good morning.
A quick question on the the Covid related work that you're anticipating you know, let's call. It the $30 million at the midpoint is the assumption that that's more of I would assume there is more front end loaded is that are you seeing that at the edge.
The activity at a relatively higher level in Q1 again because of what we're saying yes.
Yeah, Jim Thats, the definitely loaded in the first half of the year, we do think that that with the turn of the calendar. We had it we had as you know we had a great finish in that day kind of level of debt still there. It didn't change in January would you see it now as I mentioned in my prepared remarks, we do see it starting to slow and frankly, that's a good thing. So it's mostly that midpoint of $30 million definitely of first half for.
The other.
And certainly we have of backlog in our field services business. So that you know our 10th year as we're going to take a lot of those.
People in responses and get back into the basic field services side of our business, which would certainly got impacted quite a bit with the COVID-19, but.
On the response work certainly offset that but yeah.
We have a lot of backlog across our business for you. When we think that capacity will free up and be utilized in other parts of our business now.
Is there any way to maybe size that the field service backlog that might have been deferred a bit just because of you dealing with the some of the the COVID-19 related emergency work.
Yeah, it's hard to quantify but the pipeline is really good on that business its strong.
With the consolidation of safety Kleen environmental with with clean harbors.
The.
Tech services, we're seeing a lot more of project opportunities coming across and quite.
Quite frankly.
The smaller jobs for a lot more of them and honestly, we weren't as responsive probably to that.
The cross sell as we could've been the last year due to just the demand we had from Covid.
And so I think we're going to be more responsive we're going on.
More of that those opportunities are in the field services moving forward.
And it sounds like you're you've been encouraged by the pickup in the.
S business certainly from the lows I think that's probably fair to say I'm wondering as you look at that business.
Which areas of chemicals clearly it.
It's been a nice recovery, which areas have been lagging that we might start to see pick up as you think about the 21.
Certainly the refining side of the.
Our refining business, which is about a $500 million business for US you know there.
They're really been hit hard, particularly.
With the in the Gulf area as you know and so the I would say that's going to lag.
For the oil and gas industries, particularly in Western Canada.
Some of the work that we do out in the.
The oil and gas.
Drilling side, you know the waste disposal, we get off of the drilling rigs and what have you. That's all obviously just starting to come back. So those of some of the parts of the of the industries of the verticals that we're we're seeing lag behind but are you know manufacturing is really strong chemical is really strong pharmaceutical biotech those industries are really.
Wrong, we went on some really nice business in that area. So I think all in all we feel pretty good that our customers are coming back.
On the SK business the branch business does that.
Maybe you can just remind us.
On the seasonality in Q1.
Is there any I guess, what I'm asking is a it was kind of flattish Q4 versus Q3 are you seeing signs there of the pick up in activity or is it still too early in the year to really.
Any draw the conclusions from what you're saying.
No I think you know the safety clean branch business, which has 200 locations strong.
It did get impacted certainly with some of the weather related shutdowns that youre seeing here in the last couple of weeks.
And moving into 2021, we saw a lot of markets still frozen.
With the Covid and the shutdowns of.
<unk> in Ontario, Quebec, Alberta on California.
Significant shutdowns and curtailment of activities out there so that that really hurts the safety clean branch side of the business, but we're really optimistic that the you know when things turn on and you know the government opens up the.
More of the country both for the U S and Canada. Then then we'll see a real uptick in activity for the branch and I think that's why Mike sort of said, it's more backend loaded there.
Fair enough. The last question, Mike I may have missed it did you give.
Any guidance.
Guidance for tax rate from 21 of them.
I didn't but it should be in the kind of mid to high twenties.
Okay sure. Thank.
Thank you.
Yeah.
We have no further questions at this time I would now like to turn the floor back over to management for closing comments.
Okay. Thanks for joining us today, we continue to maintain a busy our IR calendar with many upcoming virtual events, including J P. Morgan Raymond James Bank of America, or the Stifel and we look forward to connecting with many of you there and I hope that all of you on your families stay safe. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Yeah.
Okay.
Okay.
Yeah.
Okay.
Okay.
Yeah.