Q2 2022 Clean Harbors Inc Earnings Call
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Okay.
Greetings and welcome to the clean Harbors, Inc. Second quarter 2022 conference call.
At this time all participants are in a listen only mode a brief.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Michael Mcdonald General Counsel. Thank you.
Sir you may begin.
Thank you Christine and good morning, everyone with me on today's call are chairman, President and Chief Executive Officer, Alan S. Mckim, EVP and Chief Financial Officer, Mike Battles, President and Chief Operating Officer, Eric Hirshberg, and SVP of Investor Relations, Jim Buckley slides for today's call are posted on our Investor Relations website, and we invite you to follow along.
[laughter].
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.
Just Vince are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today August start 2022.
Information on potential factors and risks that could affect our 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 includes references to non-GAAP measures clean harbors believes that such information.
It's an additional measurement and get consistent historical comparison of its performance.
Reconciliations of these measures the most directly comparable GAAP measures are available in today's news release on our website and in the appendix of today's presentation.
With that 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 I'd like to start by talking once again about safety.
A critical metric for us and our employees that is often underappreciated by investors for customers. It's one of the most important numbers that we deliver and can oftentimes decide who wins in a competitive bid.
But 2022 we challenged the team with an ambitious goal of delivering a total recordable incident rate or T. R. A R of under one for the year through June 30th we are currently at a 0.82 and then a good position to achieve that milestone for the first time in our 42 year history.
Our level of safety far exceeds anything that our peers are delivering and it is a competitive differentiator for us.
Team is doing a phenomenal job this year.
Turning to Q2 financial results on slide three.
We are far we far exceeded our guidance for the quarter on the strength of both of our operating segments each of which was a great story to tell I'll, let Mike walk you through the specifics of our financials, but I want to focus on four key takeaways from our results this quarter before going through the segments.
First demand for our services, particularly our scarce disposal assets has never been higher.
As U S manufacturing continues to flourish, we are processing more volumes on the high valuation than ever before largely due to partnerships with companies like three M, who close their captive incinerator earlier this year and other captives are also in the final stages of determining whether they will shut down and outsource.
Yeah.
Second Heidrick M. P. S C.
Now branded as H P C industrial which includes our legacy industrial service business is proving to be a great acquisition deal elevated our industrial service offerings provided us with an impressive set of assets and talented employees and gave US a market leadership position, while we still have work to do to capture all the synergies.
Available to us the cultural fit remains strong and we are excited about the long term prospects for this business.
Third all of our service businesses, whether the <unk> field.
Field Services' safety Kleen environmental.
Our retail or energy services are on a positive trajectory.
While our organic growth results were impressive this quarter, we believed they could've been even higher if the labor market weren't so tight and we could have hired more and faster.
And lastly, the rise in our safety Kleen sustainability solutions profitability to record levels is not transitory.
While we are benefiting from a historically widespread many of the favorable market changes our long lasting in nature.
For example, the positive impacts of I'm, a 'twenty 'twenty are permanent.
And as ESG becomes more prevalent we are seeing interest in a sustainable base oil and blended products grow exponentially.
We expect to command a premium for our green products in the future.
Years ago, we were forced to discount our base oil output to move volumes.
Those days are long gone.
Overall in an inflationary and supply change challenged environment, our team executed exceptionally well to meet the record demand for our services through effective pricing.
Cost reduction programs process improvements and best in class industry performance.
Turning to the segments on slide four.
Environmental services grew excuse me, 51% in Q2.
Okay.
Approximately 60% of that growth was generated by the addition of H P C.
While the remainder of the results of increased disposal recycling and service demand excuse me incineration utilization was 90% and average incineration pricing increased by 18%.
At the same time landfill volumes rose by 36% from a sizable pickup in remediation and waste projects.
We capitalized on an extensive spring turnaround season, and our industrial services group, while field services grew 35% through a steady stream of emergency response projects and the addition of H P. CS utility business.
Covid decon work generated $5 million in the quarter about half the size of a year ago.
Safety Kleen Environmental also grew 21% in Q2 with healthy demand for its core service offerings.
Looking at our environmental service segment profitability adjusted EBITDA Rose, 53% in Q2 on the higher revenue supported by our pricing efforts to offset inflation, coupled with cost reductions and technology investments to enhance our overall productivity.
Segment margin expanded by 40 basis points from a year ago and more than 500 basis points on a sequential basis from Q1.
If you exclude H P C, which has not even hit its full stride in terms of capturing synergies margins were up 250 basis points from a year ago.
Moving to slide five revenue in our safety Kleen sustainability segment was up 31% in Q2 on the back of higher pricing of our oil products versus a year ago adjusted.
Adjusted EBITDA rose by more than $30 million or 53%.
We continue to maximize our re refining spread by carefully managing our collection costs on the front end and capitalizing on pricing and market demand on the back end.
What are you still a collection volumes were up again in the quarter as we gathered 60 million gallons at a favorable cost levels up from 57 million a year ago.
Our sales of blended products and direct volumes came in as expected in the quarter given the ongoing additive shortages in the market and the profitability that we're generating on our base oil sales.
The value of our base also continues to rise not just due to industry conditions, but the recognition of the quality scarcity and reliability of our re refined products.
In conjunction with that view, we recently launched our clean plus brand to really fully capture that value.
Turning to slide six we continue to evaluate opportunities to execute on all elements of our capital allocation strategy on the M&A front, we completed a bolt on acquisition late in the quarter of a vacuum gas oil, we refinery and waste oil collection business based primarily in Georgia and Florida.
This acquisition will not only generate additional production for us, but will reduce our overall transportation cost by providing a local outlet for waste oil we collect in the southeast U S.
Part of our strategy also includes divesting businesses that we believe are outside of our core focus in.
In Q2, we sold noncore Western Canadian assets that were part of our legacy oil and gas segment for proceeds of approximately $18 million.
Given the unique nature of these assets in a limited crossover with clean harbors core services, we determined that this business would perform better under new ownership.
From a capex perspective, the build out of our Nebraska incinerator remains on plan and on schedule and that substantial investment will bring 70000 tons of needed capacity into the market in early 'twenty five.
In the interim we are continuing to make investments around our expanding throughput in various parts of our disposal and recycling network to facilitate our growth and this year, we're adding a considerable amount of landfill cell capacity.
Mike will touch upon our debt and share repurchase program in his comments, but let me conclude by saying that we see no indication of the trends that supported our stellar Q2 results.
Slowing in the back half of 'twenty two.
Our network of disposal recycling assets remain in high demand and that demand should accelerate faster in the years ahead through infrastructure spending.
Strict enforcement of U S and Canadian regulations cap.
Captive incinerators closures.
Our robust project pipeline and re shoring of mud.
People industries.
We will continue to invest in and grow our network in order to meet this increased demand.
Within our service businesses, we are continuing to hire as rapidly as possible to meet the demand.
And to facilitate additional growth.
For S. K S. S are we finding business is well managed and all phases from the collection to the production to sales Theres very paradigm shifts in this business over the past two years since the implementation of IMO 2020. In addition, our sustainability products continued to gain traction with our customers.
So as we move through the back half of 'twenty. Two we will continue to leverage our superior systems and processes to drive margin improvement like we've seen in the first half of the year.
We have an industry, leading executive team and focus and fostered a culture of accountability to optimize our performance.
We expect to deliver record top and bottom line results. This year, along with a robust re both a robust free cash flow to support our capital allocation strategy.
So with that let me turn it over to Mike battles Mike.
Thank you Alan and good morning, everyone, let's start with our income statement on slide eight revenue increased to a record $1 3 billion in the second quarter.
Of the $430 million increase from last year's second quarter, we estimate that approximately $210 million related to HCC.
Excluding ACC and currency impacts in both periods, our revenue grew by approximately 25% on an organic basis.
Adjusted EBITDA was 65% higher than a year ago coming in at $309 1 million.
That equate equates to a margin of 22, 8%, a 250 basis point improvement year on year.
We delivered that record margin performance with improvement in our gross profit and strong controls over SG&A costs.
Gross margin improved 50 basis points to 33, 8%.
Which speaks to our intelligent pricing and the productivity improvements Allan touched on.
SG&A expense as a percentage of revenue improved by 190 basis points from a year ago to 11, 5%.
Due to the leveraging due to leveraging revenue from HTC, and eliminating or reducing our range of non billable costs.
Despite inflationary pressures that remain pervasive SG&A on an absolute dollar basis was up only $31 5 million on approximately $430 million of additional revenue which is fantastic.
For the full year, we now expect SG&A expense.
Sandra revenue to be approximately 12%, which is substantially below our 2021 level.
Depreciation and amortization in Q2 increased as expected to $87 9 million, reflecting the addition of the H P C assets.
For 2022, we now anticipate depreciation and amortization in the range of $335 million to $345 million.
Income and income from operations in Q2 increased by 92%.
Reflecting our sizable revenue growth combined with our efforts for across the board margin improvements.
Turning to the balance sheet on slide nine cash and short term marketable securities at quarter end were $415 million flat with prior year.
We ended Q2 with debt of just over $2 5 billion.
Leverage on a net debt to EBITDA basis has now declined to approximately two six times after being north of three times to start the year.
Based on the midpoint of our new 2022, EBITDA and free cash flow guidance, we expect to reduce our leverage to below two times by year end.
Our weighted average cost of debt is currently $3 eight 4% with about 70% of our debt at fixed rates.
Even with the recent rate hikes, we are confident that we are in good shape from a debt perspective.
Turning to cash flows on slide 10.
Cash from operations in Q2 was $170 6 million in line with our expectations.
Capex Capex net of disposals was $76 million up approximately 60% from a year ago as you've added APC made progress without Nebraska, incinerator and expanded shelves at several of our landfills.
The new incinerator accounted for $9 million in Q2, and approximately $14 million year to date.
We now expect that to be in the range of $45 million to $50 million for the full year slightly ahead of our previous range as the build out is proceeding well.
Adjusted free cash flow in Q2 at $94 6 million compared with $114 6 million in Q2, a year ago due to higher Capex previously mentioned and the expansion of working capital related to the growth of the business.
For Q2, we now expect net capex to be in the range of $320 million to $340 million.
Slightly from our previous guidance due to the increase in our Kimball.
2022 chemical spend and inflationary cost cost for suppliers and vehicles.
During Q2, we bought back 335000 shares of stock at a total cost of $30 million, we have approximately $120 million remaining under our existing buyback program.
Moving to slide 11 based on our outstanding second quarter results and current market conditions for both operating segments were substantially raising our 2022 adjusted EBITDA guidance to a range of 975 to 1.005 billion with a midpoint of $990 million.
Looking at our guidance from a quarterly expected perspective, we expect Q3, adjusted EBITDA to be approximately 50% higher than what we posted in Q3 of 2021 due to Hpt's contribution.
Strong demand in the Es segment and increased S. K S S segment profitability.
Here's how our revised full year 2022, adjusted EBITDA guidance translates to our segments.
In environmental services, we now expect adjusted EBITDA at the midpoint of our guidance to increase approximately 38% from full year 2021, we.
We will benefit from volume growth across all our core lines of business and the addition of <unk> we.
We are offsetting the impact of inflation with the with the implementation of our comprehensive pricing strategies and enhancing our profit and margin there are a myriad of cost reduction activities.
For S. K S. S. We now anticipate full year adjusted EBITDA at the midpoint of our guidance to increase approximately 35% from 2021.
Given the current market conditions. These improvements we have made in that business and the initiatives. We have underway such as clean plus we are not expecting our spread to narrow much in the back half beyond typical seasonal slowdowns.
In our corporate segment at the midpoint of our guidance, we now expect negative adjusted EBITDA to be up approximately 10% from 2021.
Might increase from previous guidance.
The year over year increase is largely due to addition, the addition of a full year of HBC corporate costs and wage inflation.
Offset by lower severance and integration expense compared with a year ago.
Based on our free our first half free cash flow results working capital assumptions and revised adjusted EBITDA guidance. We're also raising our 2022 adjusted free cash flow to a range of $310 million to $350 million or a midpoint of $330 million.
As a reminder that range includes the significant investment in Kimball, excluding that investment our adjusted free cash flow midpoint would be approximately $380 million this year.
In closing I sure Alan's enthusiasm about our growth prospects for 2022 and beyond.
I talked about clean harbors resiliency in our Q1 earnings call I believe that characteristic is a hallmark hallmark of our organization.
Evidenced by our profitable growth trajectory and consistently strong performance, we are a critical vendor and partner for our customers and for many of them we serve as their sustainability solution.
I personally remain very bullish about both of our operating segments, even in the face of inflationary pressures.
With that Christine Please open up the call for questions.
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Thank you. Our first question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.
Good morning, Thanks for taking the questions. These are some pretty incredible results. So congratulations to the team on this and I would like to maybe start with picking up on some of the comments you made around the outlook and Mike Your comment around resiliency I think it is something that a lot of investors are trying.
To wrap their heads around right now you know we hear a lot of commentary broadly about an economic slowdown decelerating manufacturing indicators and it looks like for your business I mean, all the lights are green at this point. So can you talk a little bit about what gives you confidence in the sustainability of some of the trends in environmental services.
<unk> into the back half and potentially beyond.
Maybe.
Well, maybe I'll start it's Alan.
I think the company has grown through many recessions and pass through many recessions and really have tried to take.
Take advantage of the opportunities that those downturns present, and whether it's looking at M&A or it's expanding geographically to continue sort of growth and are keeping our topline going and our profitability going so I I think you know from our experience going through all those downturns in the past I think.
We feel really confident in our ability to.
Deal with whatever gets thrown at us from a slowdown standpoint, but I think the.
The growth that we're seeing with the expanding manufacturing with onshoring.
Think as quite significant and I think we're seeing it in our our volumes coming into our plants are when we look at our deferred our deferred Eric is up again.
Might want to speak to that backlog that we have.
Yeah, we continue to have a very strong backlog of deferred inventory are a bulk volumes have continued to grow our project business is up.
And across the board as you know we have a very very diverse customer base and that customer base has been spinning off volumes into all of our plants not just our incinerators are recycling plants.
Water treatment plants, our landfills all volumes of waste and flavors have been increasing and so very strong outlook going into the future.
Yeah, no as I'll say that there is there is strength in regulatory enforcement, we certainly seen that in the first half of the year and I don't see how that changes going forward. So all those three things I was talking about re shoring are talking about our pipeline and our high hazard waste streams that we take and the increased regulatory enforcement all.
Kind of bode well, regardless of what happens in the market and as Alan said.
And doing this for 42 years, you've seen plenty of recessions and we always come out the other end stronger.
I appreciate the commentary and then just wanted to pick up on your comments around S. K S S product pricing and potentially being able to price that at a premium to the market. I guess you know can you give us some some additional color around that is that something you're seeing currently do you see that happening more.
Around base oils are blended products just help us understand.
What exactly you mean by that.
As you know from.
The level of pricing and the timing around pricing at a premium.
Yeah. Yeah. No. This is Mike are you know, we certainly see the early innings of this I mean, we came out with a new brand, we're getting a lot of traction in the marketplace. You know as Alan said that the days of discounting our base oil are long gone and we're actually pricing that is at or above and there's more work to do there I mean, I think people have to understand that that the sustainability nature of it and kind of how we can provide.
Kind of documentation of sustainability and energy savings to our customers, but that is just that I see that's a boon for the long term not just not just here in Q3 and Q4.
Mhm right. So just to confirm you're you're your pricing base oil now at or above the market.
I would say, we're probably at market now, whereas we were discounting quite a bit.
I also think that we've put together a better logistics plan to manage the business in such a way where we're not.
<unk> held somewhat captive if if if our plants are full and we need to move product, we're now able to reposition product to get closer to the market and.
I would just say manage the overall supply chain much better instead of discounting to move products and so I think those two factors have allowed us to keep our pricing relatively at market pricing right now and we think we can even do better than that.
Really appreciate it thank you.
Yeah.
Yeah.
Our next question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.
Hey, good morning, guys.
Hi, Tyler.
Hey, congrats on the quarter here, Hey, Oh, yes.
What you could policy, 18% incinerator.
Incinerator pricing between call it core price and mix it seem like mix was a good guy.
Yeah, Tyler this is Eric I'll answer that.
[laughter] mix pricing is about 50% in mix is about 50% of that we continue to be seeing strong demand with very toxic difficult to handle waste streams and that volume mix change continues to help us accelerate that overall, 18%.
Okay. That's helpful. And then you guys mentioned in the release about captive incinerator closings I was just curious if that was just a broader statement you know with the closure of things like cottage Grove, or if youre seeing additional closures in the market.
Yes, Tyler this is Eric again I'll answer the as you know all of the captive incinerators continue to be our customers as well.
And we've had strong partnerships with them just like the evolution of the three of them partnership. So we see other captives that are closing here shortly.
And we work in conjunction with them to handle some of those difficult waste streams. So that pipeline continues to be strong.
Yeah, that's very interesting, okay, just shifting gears over to S. K.
So I wanted to kind of focus on the part that you have a little bit more control over on the front end. So you mentioned I know it seemingly having an impact.
Don't know exactly how to ask this question, but basically if you look at history.
I mean, how much better is your P. F O tracking versus what you might as expected at this level of base oil in the past.
I don't know if that's a great way to ask the question, but I'm trying to understand how much of the better spread is based on some of your funding actions.
Sure.
So we bought safety Kleen, and our 2012 and and as you know we were doing they were doing about $150 million in the following year, probably close to $70 million. So we really are experience a significant downturn in base oil pricing as a result of of a disconnect that happened back then with crude oil.
And so honestly looking at safety Kleen 10 years later, we're probably 500 million EBITDAR or better.
And I think what we have seen is our ability to manage the spread our ability to.
Manage particularly what we pay for oil on the street and I would say that sitting here, we're probably paying a third less than what we would've been paying when we first bought safety kleen back in early 2013.
I would also say that I'm, a 'twenty 'twenty really has crease increased demand on diesel.
I think there has created a surplus in bunker oil in a surplus and subsequently used motor oil and so the market is long we anticipate that continue and that's why we think theres really been a shift here and we don't anticipate that changing and many ships to put scrubbers on.
But you know, we we really think that continuous demand on marine diesel is going to continue to play out real positives leave for us in the future.
Yeah that that's extremely helpful.
On the flip side on the back end. So I'm just going to look at is really simply a pretty simple guy, but basically you're selling from 140 million gallons of base and blended oil annually.
You've got the addition of clean plus you're trying to help the market understand the green aspects of Libre palm oils. So basically the idea is that should help you improve your price realization versus call. It the base oil index basically you can't control base oil because it's a commodity but you can improve your quote unquote.
To that index is that kind of a good way to think about it conceptually.
Certainly is it purely relates to batesville, but you know are a real opportunity here is to continue to grow our blended business, where we even have a better margin than our batesville margin and we've really been constrained over the past two years with attitudes are we even had a recent force majeure because of the flu.
Adding St. Louis for example, so additives has been a real problem not only for us but for the industry.
Which has curtailed demand to some extent for our base oil, but also our ability to actually manufacture the necessary blended oil that we want to sell and that we have a demand for and so we believe we will continue to grow our direct and.
And our indirect blended our materials and and and really branding that has a green product. We think we will have a premium margin because of that that side of the business.
Okay excellent my last one Mike did the Georgia re refinery close this quarter.
It appears maybe it did but how much capacity does that point.
Cassidy as 18 million gallons with potential to expand.
It did close in Q2.
Late in Q2 together.
And tie that to $150 million, we saw in the 150 million gallons of oil a year.
Let's see.
Exclusive of the 818 as an inbound you alone number we're making biggio at that plant down there.
Okay. Okay, all right perfect. Thank you guys.
Hi, Tyler.
Yeah.
Our next question comes from the line of Larry Solow with CJS Securities. Please proceed with your question.
Great guys. Thanks, Thanks for taking the question and congrats as well on a fabulous quarter.
I guess the first question maybe just on the on the environmental piece you know we were all been worried about sort of the sustainability on the on the S. K S S, but an amazing quarter and you've listed a whole host of things it sounds like your visibility at least through the end of the year for the margin improvement is as strong as it probably looks points to an improvement in margins is it.
Just with synergies from.
The large acquisition you made but just going forward like you know I think there are still concerns that maybe some of this is not sustainable maybe you had like this this perfect storm going on and as the economy slows.
Couple of years, just trying to play Devil's advocate.
I know you listed a whole bunch of things that will offset this onshoring DFAST infrastructure, bill, but but do you have any concern that you know just a general economic slowdown will inevitably lead to some slowdown in your business.
Hi, Larry I'm going to start that now and I will jump in.
So first of all when you think about the Es business, we talked about last quarter. The Es margins as you look at the year year on year would be flat to prior year, we see that given the strong performance here in Q2, and our view of the back half of the year. We think that's going to be up 80, 90 basis points year on year.
So when the dust settles on 2022, we think those margins will be up sustainably from 2021 which were an all time record just so people kind of get their head around that.
Sure.
And so where we go from there I think the pipeline remains incredibly strong.
Quarterly operating a view last week, and we kind of asked that question less than six or seven times and everyone kind of said pipelines are really very robust and and they paid those go out well past into 2023 and beyond so again, I'm really very bullish about kind of our long term view on that.
And you know we talk about cost containment activities I mean, the list is long and we're building a new list and so that lift will continue and that's part of our culture. That's part of clean harbors. That's when I talk about resiliency. That's what you see and so that really is kind of what we're working on right now we know that's going to be challenged.
Yeah.
Yeah.
Absolutely, Okay, and then just switching gears on the on just on the S. K, if I know that the Georgia facility.
Small or the 18 million gallons, yet it sounds like a nice incremental purchase there.
What are your thoughts about you know its more expansion on that side I know you guys took a shot at some of the vertex assets last year.
Still things are there still assets out there re refineries that you guys are looking at and does that have.
I would think a possible additional acquisitions that you're focused on sort of a fair statement.
I think clearly there's some opportunity in the M&A space are certainly and I'm I think there's also opportunities to expand our existing plants from Erik maybe you might want to speak for that yeah well.
Well, we we took the synergy asset into our network, we have the ability to continue to expand our hydro treating capacity in our existing plants. We also have some targeted efficiency projects to grow our throughput across every one of our re refinery. So we're very bullish about continuing.
To grow internally, but also look at acquisitions.
Okay, Great and then just lastly, just back on the Pizza as I know I mentioned that earlier could you just give US you know a.
General update anything going on that I'm not space I, suppose you're not building it too much.
A lot going on but in terms of near term opportunities I assume youre not building in too much in your 2022 guidance, but can you just maybe just give us a sort of a quick update on that thanks.
Yes, so on the paper side, obviously, the regulations continue to evolve and a clean harbors continues to be very well positioned through not only our treatment assets, our landfill assets, but most importantly, our incineration assets and we continue to believe that.
Retro permitted high temperature thermal destruction through our units is really the preferred disposal methodology for P. Fast contaminants in fact, we've done some testing with a third party testing company and we've proven out well what we suspected all along that our emissions are.
There are really five to eight times the order of magnitude safer than the most stringent state and federal guidelines out there. So we're.
We're really excited about the future we have not factored in a big growth because of P fast, but that will that market will continue to evolve.
Absolutely great. Thanks, Alan I appreciate the color.
Okay.
Our next question comes from the line of David Manthey with Baird. Please proceed with your question.
Yeah. Good morning, Thank you.
So.
Speaking about the structurally higher spreads in the oil business could you talk about how you're currently sourcing used motor oil and what I mean by that is approximately how much is contractual versus just negotiated on the street and and of those contracted vol.
<unk> could you discuss the escalation indexes versus what you might have had five years ago I suspect they're more favorable for you. These days, but if you could just give us some color on that.
Sure I'll start here you know certainly we have our national accounts and one of the things that we offer a lot of major corporations as a north American footprint and so we negotiate those contracts and really make sure that there are good for both sides.
Where we also have a lot of branch owned accounts and so that business is negotiated at the local level based on those markets, where we typically are looking at pricing our services based on what the recycled fuel oil market is because that's where a lot of oil goes up it basically are a lot of your off spec oil your industrial oil a lot of the <unk>.
This waste that we collect from oil spills and tank cleanings and all those kinds of things all go into that local recycled oil market, which we participate in quite quite aggressively quite quite frankly, so I think we really look at our market pricing today much more granular much more regional.
And we don't lock ourselves into anything that's going to get us in trouble and I think that's all through our learnings back in the early 2013 and 14, but we're not going to go back there I think the bottom line here for us as well is that all of those used motor oil customers are generating other demands for services, whether they're parts washers.
Are there you know oil filter disposal or it's a containerized waste emergency response emergency response, so were Oh, we're driving a lot more high priced containerized waste into our into our network through our sustainability solutions segment and that's really the win.
Think we're really seeing today.
Yeah.
Okay. Thanks for that.
And I don't mean to throw a wet blanket on your excellent results today, but yes, I'm going to do we are [laughter].
But I'm going to anyway, if we were to enter a recession. In 2023 are you you mentioned re shoring and we've talked a lot about the U S chemical Renaissance and other factors that are favorable to you, but could you just discuss I mean, what do you think about your cyclical end markets what would the impact.
Have a say.
Minus 5% industrial production print be like if that was the the state of being in 2023 for clean harbors.
Yeah, Dave you know that the thanks for the wet blanket so I appreciate that.
You know I guess, we go back and you go back to kind of 2020, when the pandemic hit and.
And everything kind of stopped but you look at our EBITDA over the past over that time period, and we continue to grow as if there wasn't a pandemic at all it's hard for me to say, what we would do but as I said before we're incredibly resilient and incredibly reactionary and that means taking out costs and manage the business more effectively and closing sites and shuttering plants.
Going back to 2020, we closed five of our six you know we refinery that was an amazing over a course of like a month and we made that from that idea we had to do it because the fact, we started the process. That's just shows how how fast we are how nimble we are in silver Carlos what happens and I think going back to 2008, I think most of the business kind of.
Hung together very well areas like Tech service in other areas grew because these as these things are very hard to find other homes for it. So I really do believe that that if a recession would happen no. One wants that to happen you know I think that will be kind of well positioned like we have been for 42 years I mean, Alan just kind of as Alan said earlier in his earlier.
It's really a question like you know he's seen plenty of recessions and we come out we use that as an opportunity to get to get a nimble that navy M&A will be available to us and we can grow even faster.
Okay. Thanks, a lot Mike appreciate it.
Our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question.
Mr Hoffman.
Well actually there I'm here Hi, Michael.
<unk>.
Oh and I've covered you for a long time I don't think I've ever heard you use the word thrived in a quote in our press release, that's how strongly you feel about the business right now.
Yeah.
So Mike taking your guidance about segments, yes around 890 S. K S. S. Around 310, that's corporate overhead around 210 and that gets you to the 990.
Yeah, I think Youre pretty close I think it's a little higher on that on the Es side and a little higher on the corporate side I think you're I think you're in the ballpark Michael Okay, So where might be in like the 225 and that puts us in a right around the 910 okay.
That gets me to then the S. K S. A so you all have in all of US have sort of looked back on 19, and said that was kind of a normal world and S. K SaaS did round numbers 130, and now we've had this extraordinary spread expansion at this point were up somewhere in the $180 million difference.
How much of that at this point do you really think are structural because your guidance. This year in February you acknowledged there would be some narrowing in that.
The guidance reflected that we've now ploughed right through that.
What what stays with us about 180 as supply and demand rebalancing I don't think oil's coming down below 80 anytime soon so maybe eighty's 80 as the base there to.
Help us understand whats reflection is on that 180.
Yeah, Michael I think your you're right, we had talked about normal years being $1 30, but you know a lot of things have changed since 2019, which includes regulation, which includes breaking out the SK.
Oil business between you know kind of a sustainability being much more of a of a focus of our customers and all of those things have kind of changed kind of my thinking and let's say our thinking about kind of what this business does long term and I am.
It would be whether it be a you know whether it be <unk>.
You know are growing.
Growing to be managing their finding the spread Alan talked about it on the call, but I'm going to give you. Some more color on this you know having tankage in the right place and being in having better terminals and more terminals to store our oil although small things when you break the business out not just changing an org chart, it's actually kind of focusing energy on the business to manage it better.
So now we have a winter storage program, we've take base oil and moving down closer to our customers in the winter time, So that we don't run short and have to go out and buy off on the in the marketplace and all of those small things are really going to I think and it changed the game forever. I mean, obviously, you know crude prices are up and you know and and theirs.
6% of Batesville is coming from Russia, and Ukraine, and I'm sure that's not going to get better anytime soon but but I'm here to tell you that that I think that the new norm is much much higher than say the 130 that we talked about hard for me to say that today, what that's gonna be but certainly you know, it's it's much closer to where we're going to end in 2022, and where we ended.
2019, that's for sure yeah.
Okay.
Eric on the Georgia plant, the 18 million gallons, what's the yield into the V. G. L. As it it's the same three to three quarters of.
375%, 75% 70, 75%.
And then is there a plan to put a hydro treater on and convert that debate foil or do you take that video and.
Great.
Push it out into your other plants and turned it into base oil.
We certainly in the short term plans to move that V. G O into our other plants, but we've.
We've had some initial discussions about expanding some hydro treating capacity there in the future.
Okay.
And then on the incineration side, there's between yourselves and gum Springs, where Veolia is a fairly significant percentage increase in the market. The only outcomes I think if I got this right comes on first.
So how do you feel about the impact of.
That potentially 100000 tons coming in relative to where your <unk>.
Pricing structure is today the supply demand.
How does that normalize some of that.
Right.
Capacity in the marketplace.
Yes, we feel pretty good about the capacity that's coming on in the utilization continuing to be high across all of our units. The the volume of waste being generated across multiple different customer groupings continues to expand our incinerators are really uniquely.
<unk> to capture very difficult to handle waste streams and mix.
And that's what we're seeing in the market. That's what we've really focused our structure around is handling more drums handling more direct burn. So we are we continue to be very bullish about it and that capacity will come on I'm not sure I really don't think that our gum springs will be before us, but we really are we really feel good about our position.
Here and in that added capacity is much needed in the market.
Okay. So that takes me to the next piece of it is broadly U.
I think this might be a reasonable statement I think you all have enjoyed a rate of change in price that you probably have never seen an and.
Since the beginning of the company.
We've changed unit prices pretty much across all product lines.
What is your comfort and confidence that you hold on to the unit price changes.
When and if we do enter into a cycle and eventually there is a cycle.
Yeah Michael.
Certainly this Alan.
Costs continue to rise right, whether it's natural gas transportation costs, just the overall cost of service labor.
All of those inflationary costs that we've all seen I'm not going to go away.
And so we've had to be.
Aggressive Ah and pricing for our services, but at the same time taken out a lot of costs here. We had no reduction enforced in April we continue to look at opportunities to move cost or lower cost jurisdictions.
Expand the use of our rail network to lower our transportation.
Transportation costs I mean anything you can think of right is on our list of things to do.
So to really address the pressures, but the bottom line is we need to continue to move pricing and particularly in our industrial business, where our margins are not where they where we want them to be and the fact that we have a we don't have enough capacity to service all of the.
Customers that we have with the labor constraints equipment constraints that we have we're out two years on trying to get tractors in some cases and so like we like we worked with our customers during Covid, where we gave some concessions back we'll work with our accounts, but overall, we need to continue to address the.
Issues of of our margins as inflationary costs and other costs continue to increase here.
So last one for me there was an industrial recession in the second half of 2015 all of 2016, what is different about clean harbors today versus.
That operating period, and therefore give us the market more confidence that.
1990, well it might have some spread compression on oil and and that maybe that's you know not really 940.
But that's the baseline.
You know if you remember after the eveready acquisition and a lot of our growth and expansion going after a lot of the oilsands work and a lot of the fracking work I mean, we were generating close to $150 million in EBITDA on that part of our business will probably generate $25 million in EBITDA in that business now because we've sold a lot of those.
Asset so as you know when we really tried to focus on the pure environmental side and the industrial service side of that business and so when we were going through the all those challenging times during that recession is you'd talked about we we made up for that loss. We grew in other parts of our business and I think we grew because the nature of our customer.
<unk> our base.
The verticals that we service whether it be health care and the expansion, we're doing in health care, adding autoclave, expanding our medical waste our capabilities the retail side of the business. The retail side has been a real growth market for us whether it's the pharmaceuticals are the big boxes, the regulatory environment on them has been extremely stringent.
On how they're dealing with their returns and their waste materials that market's really been growing and so when we look at some of these verticals that are historically might not have been of any size. We're really seeing those grow forests, and we continue to you know kind of dry route density go after those are small quantities and I.
Those are the things that we can do and grow through another recession.
Thank you so much.
Thanks, Michael Thanks, Michael.
Okay.
Our next question comes from the line of Jim machinery with Needham. Please proceed with your question.
Yes.
Alright, thank you.
Linda.
I wanted to just go through.
See if I could which seems to be performing better than expected and I'm hearing.
Comment on a couple of things.
In terms of the cost.
Are you ahead of target there.
Are you you now.
Have your expectations for that business changed versus where you earlier in the acquisition.
Yes, Jim this is Erica.
Our synergies continue to be on track as we go through 2022 here, we still have a lot of opportunity to continue to work with our branches.
Most importantly is really working with those large customers that we're servicing there and continuing to expand the margins that we're getting with those customers develop partnerships with them better support them better.
But where we're really just midway through some of the synergies we've looked at.
I think we are I would say, we'd probably lagging on the pricing initiatives, so keeping up with the tremendous cost increases that we've taken on simply from inflationary cost increases I would say that's one part of the business. That's lagged and we're hoping that we can continue to do a better job in that area.
When would you anticipate potentially without yeah.
Talking about price increases in specifics, but when would you start to assume some of that might begin to flow through.
You know where we've been doing it a you know it's taken longer than we've wanted to we've we've rebranded it.
We've had to merge and consolidate contracts and so it's taken a little bit of extra time for us to to make both the legal and pricing contracts are rationalized and and but we're in the midst of doing that and I would expect it will continue to see that throughout the rest of this year yeah. It certainly has started.
This show up here in the second quarter, but we have a long way to go here in the later half of this year.
Got it and you you've talked to as a follow up question. Just you talked about cost containment, but you're also dealing with a lot of inflationary pressures I'm. Just curious have you begun to see any.
Plateau ing of some of the cost pressures that you've been experiencing over the last several quarters in either part of the business.
Yeah. This is Mike no. We really haven't we certainly see you know the things that we see so far you know obviously fuel prices are coming down a bit which is helpful but outside of that.
Some of the things on the price increases, we see don't like wage inflation that that doesn't go away and so I feel like that's a that's not going back. So there's some of the commodities for steel and steel drums, and so forth has started slow down, but we really haven't seen it in our pricing just yet.
Eric you might want to speak to just the cute at all pricing is an example of what we saw from where we were to where we are today as an example, yeah. The the materials that we use in our parts washers, both the solvents and <unk> Q saw a cleaning solution have really elevate elevated over 250% over the past.
Year.
And a year or year and a half so we're continuing to see that so costs are continuing to increase in certain areas, yes labor on the labor side as Mike said, Paul we've been fairly successful at adding over 1000 people year to date, we still have a long way to go on continuing to retain good employees.
And grow our employee base.
Are you seeing moderation in the Attritional levels.
We are we are we have reduced our yeah. I think we're flat I think we're flat Jim from where we were there which is good which I think as we start to see black belt and so as Eric said, we've done a better job of hiring people. So that's why we're up head count from year end.
Got it thanks, congratulations on the quarter.
Thanks, Tim.
Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question Hi, This is Adam <unk> on for Jerry today.
Excluding the new Nebraska incinerator can you talk about the magnitude of capacity increases do you expect to achieve from investments in existing incineration plants alone.
Yeah. Adam This is Eric we are we continue to look and target five to 10000 tons a year of incremental capacity across our network of incineration, but I'd also say that we also are expanding our other plants on not only our landfills cell capacity.
Recycling infrastructure, a water treatment infrastructure, so a number of different areas that we're growing capacity in because we've seen the demand across all of the different types of disposal waste streams throughout our network.
Got it that's helpful and then on the landfill side, what was the landfill pricing this quarter on a mix adjusted basis and how should we think about mix adjusted pricing going forward amid recent industry consolidation.
You got it from that one Adam I'd say that certainly the volumes are up quite a bit and when.
<unk> work happens that usually it takes our average price down I'm not sure what that mix adjusted number is but certainly the landfills performed very well this quarter and we see a really strong pipeline of waste projects coming into our network.
Got it thanks, a lot going back going back to industry consolidation I think that that's good and it's good for clean harbors I think that does that.
That they're going to be very disciplined in their pricing and I think we're the beneficiary of that.
The other thing just to add to what Eric was mentioning in the not only we are expanding our or recycling, but we're expanding our sovereign recycling to meet the demands, particularly in the chip manufacturing, we have new plants being built in Ohio, We're expanding our Ohio recycling facility. We have many several solvent recycling plants, where we want to make additional investments.
<unk> clearly the goal here is to recycle and reuse as much as we possibly can and are and we're doing a really good job of that and we're getting buyers of those recycled products, but I think in the end you need more incineration capacity because the captive market is going to continuously look at the high cost of natural gas.
Look at it as a non core part of their business and outsource a lot of those difficult to treat waste streams. So when we look at the expansion of capacity like we did with although we have we have no doubt that that capacity is going to be needed.
Great. Thank you.
Yeah.
Yeah.
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 Zane Karimi with D. A Davidson. Please proceed with your question.
Hey, good morning, gentlemen, and congratulations on the strong results.
Exactly.
Oh, maybe an extension on Jim's question earlier, but the environmental service business seemed to have a lot of things are working together to produce strong results.
Could you help differentiate how much data.
Growth was organic versus H P C contribution.
How are the rates of growth and margin profiles in the legacy beds versus H P. C. Differing at this point.
Yeah, Dan This is Mike so.
From an organic standpoint, the environmental services business grew at 24%.
Organically it grew 46% reported.
So that is that is kind of what are the different pieces are.
I'm not sure if I'm answering your question.
Yeah, Yeah, and then from.
From a margin perspective are you seeing any differences there between the legacy business versus the H D C contributions.
Yeah sure. So the environmental services margins are up 40 basis points kind of year on year, but if you. If you. If you take out if you take out a hydro Kim I'm doing an apples to apples comparison, we're up over 250 basis points year on year. So it really is a testament to the pricing and cost can.
We've talked about on this call that's really been driving that good margin improvement.
And now kind of up with hydro Cam and even up better without if you. If you go one step further and back out government funding and decon work from last year were up almost 300 basis points year on year.
Okay. Okay. Thank you for that color there and then.
Through the era of Covid employee turnover has been a fairly impactful theme across almost all industries in which they are more and more new employees and important roles, but maybe can you speak to how or if this is seem to impact your emergency response or accident accurate response jobs any updates on the number of emergency response types of jobs today.
Yeah, Let me start and maybe Eric can chime in here, but I think one of the key things to mention here is that we've been here since Covid began our people in the field.
Before him probably 'twenty 3000 responses and so it was a monumental.
Monumental task for our teams to come in to work and service our customers not only from an emergency standpoint for the basic everyday.
Services that we offer so our hats off to them.
Hum.
We have a hybrid workforce across some of our office locations and we're mindful of the fact that you know some people are still hesitant to commit to the office, but we're doing a pretty good job. There I would say that are our new hires in the field you know clearly we realize how important it is gonna be to onboard them and we've made.
Investments in HR recruiting really to try to get close to the market and really close to the needs of the organization and I think so far that's been pretty good Eric you might want to comment on that yeah. No. Thanks, Alan we are at the tail end of last year, we really restructured our recruiting onboarding organization to align and <unk>.
With the business units. So the all senior business leaders and recruiting are extremely well aligned to really focus on number one decreasing the turnover, which we've been successful at stabilizing that and increasing our new field employees and bringing them on a fast and efficiently and well trained.
And we're seeing the dividends that paid off but as we spoke about earlier in the call as well, though we still have a long way to go.
To really get our work force, where it needs to be but we're seeing positive trends with what we've done across the business.
Yeah.
Okay. Okay. Thank you for both of those are responses there I appreciate the color.
Okay.
There are no further questions at this time I would like to turn the call back over to Mr. Mckim for closing comments.
Okay. Thanks for joining us today, the team will be active on the Investor Relations front in the next several months starting with the Raymond James event in New York City. Later this month, so have a great rest of the summer and 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.