Q4 2021 Clean Harbors Inc Earnings Call
Okay.
[music].
Greetings and welcome to the clean harbors fourth quarter 2021 earnings conference call.
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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 are chairman, President and Chief Executive Officer, Alan Mckim, EVP, and Chief Financial Officer, Mike Battles, President and Chief Operating Officer, Eric Furstenberg, and SVP of Investor Relations, Jim Buckley slides for today's call are posted on our website and we invite you to follow along.
Matters, we are discussing today that are not historical facts are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today February 23, 2022 information on potential <unk>.
The 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 any revision to the statements made in today's call.
Other than through filings made concerning this reporting period.
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 these measures to the most directly comparable GAAP measures are available in today's news release on our website and to the intended of today's presentation with that I'd like to turn the call over to.
To our CEO Alan Mckim, Alan Thanks, Michael and good morning, everyone. Thank you for joining US we concluded 2021 with another great quarter, Environmental services and safety Kleen sustainability solutions segments each contributed meaningfully.
Two our strong Q4 performance, we surpassed $1 billion in quarterly revenue for the first time in our history and delivered adjusted EBITDA of $174.3 million.
Strong execution in Q4, aided by a favorable market environment.
<unk> and adjusted EBITDA and adjusted free cash flow ahead of our guidance.
Overall 2021 was an exceptional year for clean harbors.
Proud of the way our team delivered for customers and executed on our strategic objectives.
Behind our 2022 excuse me behind our 2021 financial accomplishments were a number of business highlights.
Including the investment.
And our such as our $1 2 billion dollar acquisition of Heidrick M. P. S C as well as the planned expansion of our incineration facility in Nebraska.
Many customer wins, including major awards in the retail space enhancements and that's in our ESG reporting which have led to ratings improvements and strategic structural enhancements, most notably the creation of our sustainability segment.
In addition, we overcame the deep freeze in the shelves the temporarily shut down six of our incinerators and early 2021 .
We've also been successfully navigating the various phases of the pandemic in combating inflationary pressures.
Certainly not seen since I started the company.
While 2021 was not without its challenges we met those obstacles head on and delivered an outstanding performance, including record profitability and free cash flow.
Turning to our segments starting on slide four.
Environmental services revenue grew 36% in Q4, reflecting the addition of H P C, coupled with strong customer demand and higher pricing.
The integration of H B C has gone extremely well and we're reaping the benefits of their talented team industry, leading automation technology in terrific assets as expected the cultural fit has been seamless and we continue to see immense potential to capture synergies and generate cross selling opportunities.
Segment revenue, excluding H P. C grew by more than 10%, reflecting higher disposal volumes and stepped up activity at our service businesses, which have mostly returned to pre pandemic levels. For example revenue in our legacy industrial services business grew 26%.
As we benefited from a robust fall turnaround season.
And field services, our legacy base business, excluding H P C and decontamination work was up 27%.
Sparked by cross selling and a good mix of smaller response jobs safety Kleen environmental continued its steady rebound posting a 6% increase from a for from Q4 a year ago.
Looking at profitability in the environmental services segment.
Adjusted EBITDA was 8% higher in the quarter due to the growth in revenue and the addition of H P C.
From a margin perspective, we had a tough comparison with Q4 of 2020, which saw a $4 $7 million from government assistant programs versus only 240000 in Q4 of 'twenty 'twenty. One we also had much more higher margin Covid decon work a year ago and.
<unk> like all companies, we experienced inflationary pressures and increased costs in the second half of 2021 and parts of our business. We are continuing to rollout increased pricing for all our project and contract work.
Customers have been understanding of the current environment, we're all facing and as a result, they're accepting higher than historical price increases. We also are walking away from business when customers are not as receptive to our pricing initiatives.
We expect our aggregate pricing actions to offset inflation in 2022 and at the same time, we are implementing other initiatives to reduce our cost enhance productivity and increase efficiencies to improve our margins overall.
Looking at our disposal network incineration utilization was strong at 92% in the fourth quarter up from 84%.
Utilization increased because we had fewer turnaround days than a year earlier, allowing us to process more material at our plants and really cut into our waste backlog. We also won projects that included some higher volume waste streams. Our average price per pound was flat from a year ago based on the mix in the quarter.
A pickup in environmental remediation projects in the quarter enabled us to grow our landfill tonnage by 15% from Q4 you were earlier.
In the fourth quarter of 2021 revenue from high margin COVID-19 decontamination work.
Approximately $11 million greater than anticipated due to the emergence of the omicron, Florian, but down substantially from $31 million in Q4, a year ago.
For the full year, we generated $59 million of Covid decon revenue and.
And recently surpassed over 21000 responses since the program started in early 2020.
Parts washer services grew to 228000 in the quarter as most safety Kleen branch core offerings continued to trend positive to Lee.
Moving to slide five.
Revenue in our S. K S. S segment was up more than 60% through a combination of higher base oil and blended pricing robust demand and good production at our plants adjusted EBITDA increased more than $40 million as we capitalized on market conditions to maximize our re refining spread.
Adjusted EBITDA margins top 29% on product pricing gains and strong management of our collection costs.
The front end of our re refining spread.
We believe the strategic and structural enhancements that we made to our waste oil collection and supply organization have strengthened this business for example, waste oil collections were up sharply again growing 14% to 56 million gallons.
Based on market conditions, our percentages of blended products and direct volumes came in as expected in the quarter.
Particularly given the additives shortages the market faced in Q4.
We expect those volumes to begin to grow again in 2022.
Turning to slide six we continue to execute on all phases of our capital allocation strategy. In Q4, we moved ahead with the Kimball incinerator expansion project, which remains on schedule.
We also continue to evaluate other ways to go to grow our disposal capabilities and our re refining capacity in support of our strategy for disciplined organic growth.
On the M&A front, we're continuing to look for potential acquisition candidates that will support growth in each of our two operating segments. We think there are a number of attractive bolt on opportunities in the marketplace for us to pursue.
Before turning it over to Mike I'd like to end on three key points on slide seven.
First our success over the past five years that you can see on this slide demonstrates what this team and our company is capable of achieving regardless of market conditions.
I know we have the best team in the business, our bench has never been deeper or stronger as we have a great mix of veteran leaders that know this space and talented new faces, who we bring fresh perspectives into our industry.
Second demand for our services has never been stronger one of the advantages and investing in clean harbors is that we are well diversified company that addresses a broad array of industry verticals through a range of our service offerings.
Can't remember a time in recent memory, where market demand was so robust across the board with multiple tailwind we've spoken at length about the volumes of waste and our incineration and P. S. T F network.
Our future demand looks even stronger when you add the incremental volumes from retail wins, the healthy project pipeline, we're seeing including opportunities around P fast and Super fun.
And the overall re shoring trend in the U S on the service side.
Where we turn there are demands for our valuable skilled workforce.
Given the labor shortages in the market.
And that really goes across the board industrial services field services safety Kleen, environmental and Tech services all businesses.
And my third and final point is that 2022 will certainly be as active a year for us we have a long list of initiatives underway to drive success and build considerable shareholder value and these include improving on our safety performance, which did have a challenging year in 2021.
Capitalizing on all the market demand that I just mentioned.
Extra sizing on our pricing power to cover off the inflation we're seeing.
Continued to not only retain but really recruit more of a talented workforce that we have today.
Completing the H P integration, which would include achieving a $40 million run rate of synergies by the end of 2022.
We expect to make significant progress on the Kimball Buildout and lastly, leveraging our strong balance sheet to accelerate our growth momentum.
So I think there is no shortage of activity at the harvest coming this year, we have set the stage for another great performance by the company, which will benefit benefit all our stakeholders in 2022 and beyond.
So with that let me turn it over to Mike.
Thank you Alan and good morning, everyone.
Turning to our income statement on slide nine.
Revenue increased 41% in the fourth quarter driven by the addition of APC in early October and good growth in our legacy business.
Topline growth, excluding <unk> was 20%.
Adjusted EBITDA was 23% higher than a year ago coming in at $174 3 million.
SG&A on a percentage basis was up 20 basis points from a year ago to 14, 2% largely due to higher incentive compensation as well as severance and integration costs.
For the full year SG&A costs as a percentage of revenue was lower by 20 basis points to 14, 1%.
As we look ahead to 2022.
SG&A costs as a percentage of revenue to come down from the 2021 level to a mid 13% range as we leverage the HBC revenue.
Work to control cost and expect less less severance and integration costs. This year.
Over the past five years, we've made a concerted effort to lower our SG&A costs as a percentage of revenue does the use of technology and other workforce initiatives. If we hit our target for 2022, we will have lowered our SG&A costs as a percentage of revenue by almost 200 basis points in total over that timeframe.
Depreciation and amortization in Q4 increased by $82 9 million, reflecting the addition of the H P C assets.
Full year, depreciation and amortization was $298 1 million towards the lower end of the range. We provided in November .
For 2022, which includes a full year impact of HBC, we anticipate depreciation and amortization in the range of $330 million to $340 million.
Income from operations in Q4 increased by 33%, reflecting our revenue growth as well as efforts around pricing and managing our re refining spread.
All year, our income from ops climbed by 38% to nearly $347 9 million.
Turning to the balance sheet on slide 10 cash.
Cash and short term marketable securities at quarter end.
$534 million.
Klein from September 30th.
The approximately $250 million, we used as part of the funding for the APC acquisition.
You can also see the impact of that transaction and our debt balance as we ended the year with debt of more than $2 5 billion.
Leverage on a net debt basis, using our 2021 EBITDA was approximately three one times base.
Based on the midpoint of about 2022, EBITDA and free cash flow guidance, we expect leverage to be less than two five times at this time next year.
Our weighted average cost of debt going forward is 355%.
That number reflects a new swap agreement, we recently put in place to limit our exposure and some of our variable rate debt.
And we continue to have no debt maturities until 2024.
With approximately 70% of our debt at fixed rates. We are in good we're in a great position interest wise, even in a rising rate environment.
Turning to cash flows on slide 11.
Cash from operations in Q4 was a healthy $177 8 million.
Capex net of disposals was $89 5 million up significantly from a year ago, as we added HTC and and I'm moving forward with some growth initiative investments, particularly in our plants.
Our spend on the new Kimball incinerator was $4 1 million in Q4 and totaled $7 2 million for the year.
We delivered Q4 adjusted free cash flow of $88 3 million and a record $326 3 million for the full year.
For 2022, we're currently expecting a net capex to be in the range of $310 million to $330 million.
The large year over year increase reflects four items.
Full year of HBC Capex.
Both in legacy clean harbors business, particularly landfill expansion.
Inflationary cost for materials and vehicles, and approximately $40 million to $45 million and the Kimbo project. This year.
During Q4, we brought we bought back approximately 56000 shares of stock at a total cost of $6 million.
We still have more than $150 million remaining under our existing buyback program.
Moving to slide 12 based on our 2021 results and current market conditions. We expect 2022 adjusted EBITDA in the range of $765 million to $795 million with a midpoint of $780 million.
This guidance assumes approximately $115 million of contribution from the base <unk> business or one on one on one on $101 million on an incremental basis from 2021.
In addition, there are $20 million to $25 million of cost synergies, we expect to realize in 2022 out of a total of $40 million. We expect from the deal on an annualized run rate in 2023 and beyond.
Looking at our guidance from a quarterly expected protected.
Expect Q1, adjusted EBITDA to be 30% to 35% higher than what we posted in 2021.
Largely due to the addition of APC and higher profitability in the <unk> segment.
Here's how our full year 2022, adjusted EBITDA guidance translates to our three segments.
In environmental services, we expect adjusted EBITDA at the midpoint of our guidance to increase in the low twenties on a percentage basis for the full year 2021.
Even with much lower decontamination work and no money from government assistant programs, we expect a significant increase due to the addition of H P see organic growth in our core lines of business increased pricing to offset inflation and a comprehensive cost mitigation initiatives.
As referenced at the point of reference this segment received government assistance of $10 2 million in 2021.
For S. K S. S. We anticipate full year adjusted EBITDA at the mid point of our range did decline in the mid teens compared with 2021.
As we did successfully throughout 2021, where we exceeded guidance in every quarter and raised three times during the year, we're baking in some conservative assumptions around the re refining spread even though we have not seen a narrowing at this time.
Also this segment received government assistance of $1 4 million in 2021.
In our corporate segment at the midpoint of our guide we expect negative adjusted EBITDA to be up around four 5% from 2021.
Largely due to a full year addition of HBC corporate cost offset by lower incentive comp year over year, given the great year, we had in 2021 as well as lower severance and integration expense.
Based on our current EBITDA guidance and working capital assumptions. We now expect 2022 adjusted free cash flow in the range of $250 million to $290 million or a midpoint of $270 million.
That midpoint includes our significant Kimball capex investment of $40 million to $45 million.
While that Capex increase increase reduces our reported free cash flow, we view that as an acquisition style investment that will produce strong levels of returns over the long term.
I should point out that our record adjusted free cash flow in 2021, reflecting a strong positive working capital contribution as we lowered our DSO through a companywide focus on collections.
Let me conclude my prepared remarks with one final thought.
When new investors asked me about clean harbors the point I emphasize with them is the resiliency of our resiliency of our organization.
Just look at our five year EBITDA and free cash flow charts that are on slide seven.
<unk> depend on it and all of the accompanying market turbulence that impacted us and our customers over the past two years, we marched on doing what we do best actively managing the business.
We introduced our first to market Nashville, decontamination offering that many large scale customers came to rely on.
We took aggressive cost actions at the outset of the pandemic and temporary temporarily reduced our variable expenses before ramping back up as the business recovered.
We reshaped the structure of our waste oil collection business and closely aligned it to our re refining operations, which had a hand in the widening of the spread in 2021.
Our resilience it goes well beyond our 500 permits high barriers to entry and comprehensive set of offerings. It's a 40 plus year track record that has become part of our identity as an organization.
As Alan said 2022 will not be without its challenges, whether that's inflation or labor availability or severe weather.
Regardless of those can or what those conditions are we're confident in our ability to respond and maintain the profitable growth path that we're on and deliver significant value to our shareholders again this year.
With that Christine Please open up the call for questions.
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Thank you. Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Hey, good morning, guys.
Got it Hey, Hey, just a couple quick housekeeping items, but one what is the assumption that's built into the 'twenty two guide around Decon work and then to a given the success. It sounds like your incentive comp accrual increased in 'twenty. One just how much of a benefit in dollars would that be if you just normalized.
Yeah, Tyler I'll take both those so when you think of decon for 'twenty, 'twenty, two less and less than $10 million I mean.
That's a good thing less than less unless we saw a little bit early in the year, but it's going to it's been slowing way down.
When you think of incentive comp.
Say, it's $5 million to $6 million of of Taylor.
Tailwind into 2020 do collectively across the organization.
Right. Okay. Okay. That's very helpful. And then so you know again my thanks for all the guidance I know you don't guide to revenue or margins, but there's just a lot of noise in es margins I mean, we're layering in H P. C. We're taking how decon got we're lapping these government payments, but if you stripped all of that.
Way at a very high level I mean are you expecting your core es margins to expand in 22 again with all the pricing and cost initiatives that you guys had talked about.
Yeah, Yeah. It's a fair question you know, it's tough to forecast revenue us even on the Es side, but I would say to you that we have made real good progress on the pricing initiatives that Alan mentioned in his prepared remarks, and we're really kind of making covering off on inflation plus cost actions should get our should get margins to expand.
The way I'm thinking about it in kind of this is more of a first half second half I'd say firsthand margins will be under pressure in Q1. So I think you do back out there'll be much better I think when you look at Es for the year kind of year over year I think it can be flattish for the year.
Okay. Okay. That's helpful. And then so I went on the 92% incinerator utilization I mean, that's a great number I assume it's basically full practical utilization, but looking ahead, just given the backlog the incremental three M tons I mean should we assume that that's kind of where the utilization will sit.
Maybe it bounces around a little bit with you know Q1, or our downtime, but just any any thoughts there and we'll have Eric as Eric can probably take that will never yes, I'll take that Tyler.
So for the full year and in 2022 weeks, we expect our utilization to improve overall annually from 2021, we continue to have a strong backlog of the three end volumes continuing to flow into our network.
We have a strong project pipeline that will help with that utilization as well. So all things considered we expect overall annual utilization to improve year over year.
Okay. That's great and then just my last one real quickly. So it's a little bit of a odd question I guess, but I have read a few stories about bird flu kicking back up in the Midwest. So Alan I know that was a major E. Emergency response event back in 2015, I'm just curious if you're seeing any calls on mobile incineration or.
Anything to note there sure.
Eric do you want to sure I'll answer that as well Tyler. This is Eric we have not seen anything yet that has been substantial we're obviously continuing to be tied in with the government to be able to respond to that but we haven't seen anything substantial at this point.
Okay. Okay. All right appreciate the time guys. Okay. Thanks Patrick.
Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Thanks, so much for taking the question obviously, a big event my name M&A perspective in the industry over the last few weeks are with our S. G are announcing the.
The agreement to acquire U S ecology.
I I guess certainly would welcome your thoughts on a potential.
Occasions for the industry broadly, but what I really want to ask here is.
Oh about behavior in the industry.
Particularly during such an inflationary period.
She really seem to have a thesis that you know the environmental services space is going to continue to go through a maturation and proving rationality in terms of competitive behavior and pricing.
Talked about having such a shortage of skilled labor in the industry. Its other inflationary pressures I guess, what are you seeing in terms of competitive behavior in the market right now.
As you look across lines of business and how does that play into your expectations around pricing for 2022.
Yeah, I think probably the biggest issue that all competitors faces a staffing.
Transportation costs hiring drivers everything that you read about even shortages of people moving railcars and so a backlog of rail is even a challenge for for many of us in the business and and I think that.
Our our observations at this point both on in both segments is really people struggling and and in dealing with those kind of issues and certainly not in a position where they're discounting their services to take on more that they can't already handle and we're probably in the same boat here as I.
Our our book is extremely strong.
Backlog is stronger than ever and we have several thousand positions open we continue to look at opportunities. We have approximately 20000 employees. We look we look for an additional 10% growth this year in staffing and ER and that was really driven by our sales and the opportunities we see in the mall.
And I think those opportunities are probably across the board with our competitors as well.
Right. Thanks, and the second one you mentioned in the prepared remarks looking for ways to increase disposal capacity I think Mike you might have mentioned some increased capex and the outlook for it for landfill expansion can you just touch on that a bit more.
What's obviously, there's there's a strong backlog here, but maybe you can comment on you know the the drivers of the need to.
Expand your disposal capacity and where you think you may see the most progress outside of what you've already announced with Kimball.
Yeah, I'll just comment that you know this year is probably going to be our most significant spend in landfill expansion I think aric over about $15 million roughly close to 29, Oh double that expand itself. Okay. Good. So why don't you touch on that if you would yeah. So we have a big investment in a few of our landfills are expanding cell capacity.
Obviously, the pipeline that we see across our projects basis robust.
We continue to target improvement within our capacity and our incinerators, we annually target five to 10000 tons of growth initiatives.
As Mike had mentioned, we had a nice expansion this past year and a reaganite our incinerator in Utah, where we are.
Added shredding system. So we continue to look at key projects throughout our network to expand our capacity I think California was the $15 million expansion roughly yes, but willow.
Okay. That's great color. Thank you okay. Thanks, Bob.
Our next question comes from the line of Hamzah, Missouri with Jefferies. Please proceed with your question.
Hi, This is Mario <unk> filling in for Hamzah.
I guess going back to the RSC U S ecology deal.
Maybe you can just remind us as of today, what your market share is and in hazardous landfill volume and an incinerator capacity and then I guess also where do you see yourself in consolidating the space I know you talked about having an active M&A pipeline and Youre looking at.
Candidates, but maybe you can give us an update on I guess, where you stand and kind of your expectations for where you can be as a consolidator also in this space.
Yeah I think.
Obviously, our U S oncology is wonderful company with tremendous assets and been a.
Competitor of ours for for for as long as we've been in the landfill business, particularly of dating back to 2020 'twenty two.
Oh, two I should say and we as Eric mentioned, you know, we're going to spend significant amount of capital expanding our existing landfills.
We continue to look at opportunities to expand our our landfill footprint.
There hasn't really been any greenfield landfills.
Built in and dozens of years. So I can think of on the incineration front as you know we're the number one player in incineration, we built the new incinerator in El Dorado.
And now we're really duplicating that plant.
And Kimball and quite frankly, we continue to see opportunities, particularly on the incineration front because many of our customers captive incinerators are looking for alternatives to either shut those down or went to divest them and and so we really are focused.
You know on expanding our existing landfills and are adding more incineration capacity across the board.
Do you have an update for kind of the market share I think the last time I saw you guys put out was in 2019, that's like 66% share in capacity and in an incinerator capacity and I think a 30% and hazardous landfill volume is that it's pretty pretty consistent now compared to when.
When it was back in one in 19.
I'd say, that's fairly consistent I would say like 70%.
And maybe a 30% one third two third type of thing when landfills.
Got it Okay and then just the last one just given what's going on with the oil markets. I don't believe you guys forecast spread but maybe you can just kind of give us an idea of how you're thinking about I guess, the conflict and how it's driving oil prices in and I guess, where the how much can you guys benefit from this.
Or I know, it's obviously about managing the spread but just could you just give us more color on around.
Again kind of the impact and maybe even benefit or if there's any kind of negative take on this as well to your business just would love to get your thoughts.
Sure I think well a couple of things one would be I think clearly we're seeing the benefit of IMO 2020, even after going through the pandemic.
You know not really clearly seeing the full impact of that you know through all the changes that went on in shipping and and and and and other changes to the you know petroleum market. So to speak I think clearly we're seeing that with the demand on low sulfur oil you know driving record pricing in that area.
So with that we certainly see a huge.
Our growth in the volumes of waste oil that are available to us at a much lower cost because of that we're also seeing customers being very.
Demanding more of our Green oil you know, our re refined oil and and our pricing discount that had historically.
Been in place really has been eliminated and we are now able to price our.
Our base oils at are at a very strong market or market rate because of the demand for our recycled products and and so we continue to look at opportunities.
To expand our production to improve on our processes to drive more volume of a base all through our our re refineries and and other opportunities to continue to grow that side of our business. Because we think that is the long term trend for the use of these waste oils that have been.
Generated.
Great. Thank you very much okay. That's fine.
Our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question.
Thank you for taking the questions. This morning.
You got a bunch of housekeeping one on an internal growth.
I'm not internal growth internal cost of inflation can you share with us what you're estimating that is in your business model.
Yeah, Michael I'd say, it's a mid to high single digits in the 2022 model.
So I mean, well that's enormous range, so is it 5% or 8%.
It depends on it depends what parts of the business, we're talking about right. So it's hard to it's not one number that fits all things right. So some parts of our business and inflation is a little more temperate in some parts of pretty aggressive incentives tied to just the lag.
For intensive type of business or not.
Okay.
So that leaves me then to the price question and you've made the comment.
I think it was in Alan's opening remarks that you.
We'll cover the cost of inflation with price.
So that says across the book you've got variability in price between five and 10 per cent one too.
Do you see.
'twenty, one as maybe being a seminal event where.
You can go forward from here is inflation normalizes and retain more pricing control in the business.
It becomes more of a factor.
But.
I guess, Michael I would say that you know.
Our relationship with particularly our large accounts has been one where they're going through downturns and suffering through challenges like they did when the crash of crude oil took place as a result of Covid. You know, we gave a lot of concessions and and and even though we had contracts in place and so we're doing just that.
That today, where we have a lot of long term contracts that are worth you know several billion dollars and where realizing that we have significant cost increases because of crude oil because of.
Transportation cost because of labor and really this whole supply chain disruption is taking place and so we're going back to those same accounts and are really driving our price increases not to gouge or to drive margin we're driving.
To keep up with inflationary cost and I think customers are very willing to.
Two.
Two to take on those cost increases because they see it as legitimate it's really us for us to continue to drive margins by driving operational excellence and cost initiatives and other ways of improving our business as well as drop in driving our topline and cross selling particularly on the H P. C side, that's where we're really going to.
See some margin flow through on our business this year.
Okay fair enough.
Mike within the guidance.
Okay. If I calculated the way you framed your S. K S down year over year, it's about $35 million, the $100 million of spread advantages youre assuming comes out.
Yes, Sir.
Okay. So I got that right alright, and then on deferred revenue.
Looks like the seasonal pattern between three and four Q was.
Pretty muted and then it's pretty healthy year over year. So that's another data point that says.
Really really strong.
Men and incineration essentially sold out what's your euro assumption of one is that a correct assumption and two what's your assumption of whats not reflected in that number that's still sitting at the customer.
Yeah. So the deferred revenue made some real progress in Q4, you know Erik and the team did a good job of kind of.
Thinking creatively about how to move waste more efficiently and got after that back that backlog pretty good that I still think there's a lot of wasted peoples at customer sites. You know the good thing Michael when you think about 2022 of what's not there yet.
<unk> made me that one of the happiest things when it did the analysis, we looked at the quarterly reviews with landfill volumes picking up and and so that really is an area. We have been on these phone calls for two years now talk about landfill volumes being down year over year, and that's and that's what you're talking about larger projects and that really is I think well, how we're going to grow and how we're going to <unk>.
<unk> the guidance, we're giving you. This morning is those landfill projects kind of coming to fruition, we've been talking about that pipeline for a year or so now and the good news is we're hopeful that the variance.
In the rearview mirror and those projects starting to free up and so I think that that's that's.
The incinerators are running well, we got more opportunity there, but really at the landfills, where I think when I drive good growth for 2022.
Okay and then.
On the labor side, Alan everybody's facing this issue this isn't unique to clean harvest for sure but would you characterize that the business could have grown more if you had more labor, but you're not losing business. It's a function of nobody could do it because theres a labor issue.
I think we do have a lot of subcontractors and partners and so I do believe that were meeting customer demand, but it's costing us more.
And I think that has been part of our margin issue and and so we are again, we'd need to drive price improvement across some of those areas, where we're seeing increased cost and our recruitment.
We need to accelerate that and so we actually have.
<unk> reorganized somewhat in our recruiting training on boarding area to accelerate that and create sort of the labor pools that we need for the peaks and valleys of what we see in our business throughout the year.
Okay, and then Mike can we bridge a couple of things between capital spending and free cash flow on the guide.
And they kind of go hand in hand, obviously, so in free cash flow.
If I'm if I remember correctly, you had a pretty good asset sale numbers, so I've got that as a headwind.
What I heard earlier to Tyler's question, there's $5 million to $6 million of cash that gets paid out in the spring for comp.
Kimball, what's the incremental on the landfill cell development versus a year ago.
Oh I hit all the items that I would have to think of as headwinds to the.
Free cash some of its in capital spending some of its things like asset sales, yes, so the way I'd said.
Michael is that Kimball as let's say, 35% to $37 million more this year than last year landfills as Eric was just mentioning $15 million to $20 million more you know.
Asset sales as you saw in the earnings release, we did $22 million last.
Last year was probably closer to 10 this year as we look at the.
The press release and in the working capital is probably a $20 million. Good Guy we made as I said in my remarks, you got you know kind of DSO improvements in other in other areas. So I think kind of all of those add up to you know kind of mid 80 number and you. So you can take that and add that to the $2 70, and you get to like a $3 $53 60 number which I think is pretty good growth, but those are.
That's how I think about what you said that if you take it over at over EBITDA, 45% conversion ratio, which I think is fairly consistent with historical patterns.
And then for our modeling purposes, how do we layer in Kimball.
In 'twenty three 'twenty four as far as what we're spending so we get that number right.
Okay.
I think it's about 80 million Eric.
And over the next couple of years I thought it was $80 million in 2023, and then I forget what the 2024 number is but.
Okay. So use 80 in 'twenty three and then it comes down to I think you're spending.
I forgot now 180 isn't one of them.
Okay.
Okay, that's great.
Terrific. Thank you very much.
Nicole.
Our next question comes from the line of David Manthey with Baird. Please proceed with your question.
Hi, good morning, everyone and thank you.
First off our hydro Kim I think back in early August you. They were predicting a $744 million in revenues and 115 in EBITDA for the year for a 15, 5% EBITDA margin can you comment on how that came in was it better or worse.
That generally.
Yeah. It was in Q4. It was 160 something 165 million is that the number.
And it was about $15 million of of of EBITDA, but included in that EBITDA was like $5 million to $6 million of severance and integration costs. That's the 'twenty 'twenty.
'twenty, one number 2022 like we talked about.
In my prepared remarks, I think it's 115 million plus $20 million to $25 million of incremental EBITDA due to synergies. So I think those are those are good numbers to kind of guide or something and as Alan said in his remarks, I think that the integration went really well and the team did a great job.
Okay.
As we think about the $40 million run rate synergies after the first year of ownership.
Should we assume that the exit velocity when we get to the fourth quarter of this year entering the first quarter of next year at that 10 million a quarter rate or is there more scaling up to go from there I'm just trying to get a idea of the timing on the synergies.
Making real good progress we meet every other week with the team and Erik and Alan or others are on the call and we're making where we're in good shape, we will get there by the end of the year I believe.
Okay and then on the.
Some of those nonrecurring.
Nonrecurring type items, I think you've mentioned $8 6 million in severance costs in the fourth quarter and then in the third quarter I'm going to say there was close to $6 million of acquisition cost.
Which I assume that both of those numbers are included in adjusted EBITDA first of all is that right, Mike and second as you look at your guidance for 'twenty 'twenty. Two would you make any any allocations for those type of expenses or do you assume those are zero and then go from there.
Dave So the answer your first question is yes, we do include them in our adjusted EBITDA as it is a bad guy to adjusted EBITDA, We do try to call them out.
Talk about them, but those are in the number.
The second point is that we do assume some small amount of severance and integration costs.
Every year in the in the guidance and it's kind of high single digit number.
Okay.
Terrific. Thanks, a lot guys.
Yeah.
Yeah.
Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.
Yes, hi, good morning, and nice quarter.
I'm wondering if you could talk about what like for like our incinerator in landfill pricing was I know mix matters. A bunch go can you just talk about what it was in the fourth quarter and you know what are your expectations for those product lines, specifically in 'twenty two.
Yeah, Jerry I'll, I'll start and Eric and now please feel free.
Chime in on incineration volume what happened in Q4 was actually.
<unk> was flattish as I think Alan said in his remarks, but it was really because of mix and it's a great story, because we're getting a lot of more project work that is lower price points, but that's been that was part of the over deliverance and Q4 versus the guide. We gave you three months ago. So that is a that is kind of a great story.
The pricing was really strong the team did a good job of driving price in Q4. It just got muted a bit by the mix issue and I'm really happy about the mix issue because it really drove our utilization are way up and so again I'm really that's really is a great answer as you think about 2022, and our ability to kind of over deliver on the numbers, giving you. This morning I think.
It's going to be part of the story.
And is it possible just to quantify what the like for like pricing would have been Oh.
It makes adjustments.
Yeah, I'd say, if the market basket and kind of insane all in it was high single digit.
Okay terrific and then.
In terms of.
Normalized incinerator capacity utilization.
Where can we view effective capacity on an annualized basis.
At this point based on the way the plants are operating.
Eric mentioned, it a minute ago, but I think that there's an opportunity there to increase capacity I mean, and again it comes down to kind of project work and that that.
If you think about it and generated a different pipes drum volumes direct burn and then bulk bulk solids and liquids and those bulk solids and liquids are kind of project work and I'm really again, Eric and I have the team is bullish about that ability to grow that 2022.
Yeah, Yeah, no that's clear.
But jerry.
Jerry just to build on that as mentioned earlier, we continue to try to expand our capacity across the network and 87% to 90%.
Annual basis as solid based on the ups and downs of.
Project business that flow into the units.
Terrific I appreciate it thanks.
Thanks Terry.
Next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question.
Hey, guys good morning.
Just a couple here most of my questions were answered, but a couple of.
Interesting commentary you mentioned some areas you guys are actually benefiting or people turning to you more with some shortages in skilled labor and obviously you guys are feeling that the shortage of skilled labor, but perhaps your demand is actually better because of that shortage just trying to.
Clarify that is what I heard I think I think we see more particularly some of our largest accounts looking to continue to outsource and bring us in to provide client services and <unk>.
We have several hundred locations, where our team show up every day, and we see opportunities for growth and that were.
Whether it's an environmental program or it's in the industrial services program, we see outsourcing as a continuous trend and that's what is driving that.
And you guys are obviously growing fast so you're you're hiring how about your attrition rate as you know obviously a lot of companies are facing difficulty was attrition.
Do you have can you give us a rough idea of 'twenty 'twenty. One did you I assume you hired more than you lost but could you give us any thoughts on that.
I think we've seen obviously it it depends on you know.
What what particular jobs that we're talking about but.
We did see with H P. C that they had a much higher turnover rate where their direct workforce and historically, we have of our and our organization. So that's something that that's immediate for us to start working on we did see a higher turnover in some of our.
You know indirect SG&A kind of employees and Oh, you know people working from home going hybrid people you know sort of the great resignation you hear about we certainly didn't.
We did get impacted by that as well, but not significant I would say I think we continue to have a real strong.
Work force with a lot of tenure here and we want to continue to build on that.
How about just a follow up on the inflation you know obviously you guys are pushing hard on price and then historically, you've you've gotten you know, especially the incinerator business, but you've been able to pass on prices what do you know.
Most of your businesses.
Obviously now with inflation, you're pushing harder.
Maybe this is hard to measure, but it's the you know you're getting less benefit now is most of this your price increases just being.
Offset by inflation are you still getting sort of that incremental.
Whenever low low to mid single digit average benefit.
We really accelerated the pricing.
Effort here and the communication on pricing and myself and a whole team of leaders meet on a weekly basis across the company across different parts of the businesses.
To measure the results talk about the challenges are talk about the opportunities in and that I think that message has really been given to the entire workforce about the need for us to.
Really focus on that number one issue, which is driving price improvements when you see this kind of inflation happening.
Okay. Just last question on this on the safety Kleen I'd ask ISS, you guys mentioned 35 million sort of.
<unk> hundred 90, plus or minus is sort of the guidance. This year, that's taking a step back on pricing in some of the sustainability of the spread if we look back to pre Covid 2019, you did like 130 and EBITDA in the segment.
Yeah, roughly that name that $60 million difference.
Honestly, some I am all when their benefits some of your reorganization your spread management.
Is there still some you know fudge in there that you know some unsustainability isn't that number you think.
Don't think so I think I think it's a pretty conservative number.
Considering where the first two months of looking here, we've got a strong book.
Obviously, we've seen base oil price increases come out in the last.
Two weeks here.
Strong demand for our products are in it and so I think I think Mike because you know as conservative as he has he always is but I'd like to think that there's no reason for us not to continue to improve that business. That's like one of the opportunities will be that that obviously.
We took advantage of the strong base oil demand and pricing, but as we move forward here.
More of our blended products being sold direct to our customers is where we will see continuous margin improvement and that that is has to be our are our primary.
Goal for this year is to drive that direct market, we really held back because additive shortages, we had a huge.
Several force Majeure is placed on us and in a lot of problems, both with additives with hydrogen supplies last year. So all of those things I hope will be behind us this year and I'd like to think that we could do better.
Right, Okay, great. Thanks, I appreciate it.
As a reminder, if you would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of Chris Grandeur with Needham <unk> Company. Please proceed with your question.
Hi, good morning, and thanks for taking the question. If you could briefly just how could you discuss how the integration.
Hydrocarbon is proceeding relative to your expectations and what's left what are the key major milestones are left there. Thank you.
Sure I would say that.
Most of the well certainly from day one their business is running on our financial systems, but there are some system.
The legacy systems that H P C as operating on that will be converted over.
In the next two or three months here as we as we continue to integrate the businesses. There's also sort of some challenges regarding legal contracts and branding and so you'll you'll hear about us coming out with a a a brand that will tie together the legacy clean harbors industrial business with D. H P C business.
And then move forward with getting one brand new standard contract with you know certainly our top 100 accounts that represent a substantial amount of that 750 $800 million of business that H P. C had so those things are certainly in the process of being worked on and and.
That's part of the I think the synergy that Mike talked about that'll be coming out by the end of this year.
Great and with determining with the termination of the vertex asset deal to what extent could you accomplish some of the things that you were targeting a.
With that acquisition, either organically or via some other means.
Certainly yeah, we've been looking at making both investments in that are in that area of our business as you know as well as looking at acquisitions and the.
The company over the past five years <unk> bought a T F I and Emerald in sin in viral waste in and so we look at sort of a mix of both internal investments as well as potential acquisitions and.
We think that that would be our continuous focus moving forward here.
Excellent. Thank you very much yeah. Thanks, Chris.
We have no further questions at this time, Mr. Mccann and I would now like to turn the floor back over to you for closing comments, okay terrific. Thanks for joining US today, we have a packed our IR calendar in March with in person conferences with Raymond James in Jefferies.
Forward to sharing the clean harvest story with you at those events and have a safe day.
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.
Okay.
Okay.
Yeah.