Q3 2022 Clean Harbors Inc Earnings Call

November 2, 2022

Greetings and welcome to the clean harbors incorporated third quarter 2022 conference call.

This time, all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

What you require operator assistance during the conference. Please press start here on your telephone keypad.

As a reminder, this conference is being recorded.

Now my pleasure to introduce your host Michael Mcdonald General Counsel for clean harbors incorporated. Thank you Mr. Mcdonald he may be getting.

Thank you general and good morning, everyone with me on today's call, our Chairman President and Chief Executive Officer, LNR Spit, Kim EVP, and Chief Financial Officer, Mike Battles, President and Chief Operating Officer, Eric Gross Newburg N S. B P of Investor Relations Jim Buckley.

Slides for today's call up posted Investor Relations website, and we invite you to follow along.

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.

Participant.

Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today November 2nd 2022.

Information on potential factors and risks that could affect our results is included in our S. E. C filings. The company undertakes no obligation to revise a publicly released the results of any revision to the statements made today other than through filings made concerning this reporting period.

Today's discussion includes references to non-GAAP measures the numbers believes that such information plus an additional measurement and consistent historical comparison of his 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 let.

Let me turn the call over to our C E O and founder Alan Mckim, Alan Thanks, Micheal. Good morning, everyone. Thank you for joining us.

Turning to slide three.

Before discussing our quarterly results. So I wanted to touch on our other major announcements this morning regarding executive management changes.

March 31st I'll be stepping down after 42 years of leading this wonderful company.

At that time, our Chief operating officer, Eric Grossman, Burg, and Chief Financial Officer, Mike battles will assume the role of co C E O's and I'll remain as executive Chairman of the board and Chief Technology Officer for the foreseeable future.

For the past several years Ah Board has discussed succession planning as part of its regular meeting agenda. So today's news has been in the works for some time.

Company is in great shape financially and as strong strategically with leading market share and all of our core businesses. We have built a deep organization and even recently strengthened our board.

A long term goal that I've had for a company has been to achieve $5 billion in revenue and a billion dollars in EBITDA.

Or a margin of 20%.

It is a financial accomplishment you on the <unk>.

Birds are realizing with our results in 2022.

Therefore, I felt to be the right time for me to step down as C. E O and I made the board aware of my intentions. The board reviewed all of our options and decided that moving to a cozy Yo model was the best plan and most seamless transition.

As a founder led company we.

Reelected to keep the senior leadership team together with me moving to an executive chairman role.

Are two outstanding leaders, Mike battles, and Eric Gerstenberger will take over running the company effective April 1st.

Over the next several months will transition responsibilities amongst the leadership team.

I'll turn it over day to day responsibilities to these guys as my focus will shift to overall strategy M&A and driving technology. For example, we're in the middle of converting our ERP. The Oracle from people soft so I'll continue to oversee our tech steering committees as well as completing several other strategic initiatives that are underway.

Mike and Eric are exceptional executives, who have clearly demonstrated their ability to lead manage and grow the company.

The three of US have work well together for a number of years and keeping that management team in place has been a top priority.

It has been my honor to lead this company since its founding in 1980.

The board and I are confident that under the leadership of Eric and Mike along with the wider management team that the company will continue to grow and deliver a strong results for all of our stakeholders.

Turning to slide for as we highlighted in this morning's earnings release. The company reported another quarter was strong results in Q3 exceeding 300 million and adjusted EBITDA for the second consecutive quarter with both segments contributing to our growth on.

On the top line, we benefited from H P C healthy organic growth and pricing that offset inflation.

Our bottom line performance highlighted that are leveraging of are valuable assets and diligent capital allocation strategy is working as net income adjusted EBITDA and adjusted free cash flow or up significantly over the prior year period, and Michael take you through the details in his remarks.

Before we get into our segment numbers, let me spend a moment talking about some of the key takeaways from this quarter from.

From my perspective of the most important metric from the third quarter is not one that you'll see on our income statement.

It's our total recordable incident rate or T. R E R. A key measure of safety.

Our goal for 22 is to achieve an annual T. R. I R of less than one for the first time in our history. In Q3 are tier I or was just 0.65 and through the first nine months of twenty-two we sit at 0.74, both of which are outstanding. So the team really has done an amazing.

Job all year of keeping themselves and each other as safe as we continue to set the standard for safety in our industry.

On a somewhat related note I also want to highlight the outstanding work that our team did during hurricane in <unk>.

We have 18 facilities in Florida, including several directly in the storm's path and the teams were able to get back up and running within days.

I'm happy to report that are hundreds of employees in Florida. Another nearby states that were impacted by that storm or all safe and.

We assisted with temporary housing for some before they can return home I'm proud of how the teams all rallied to help each other it's what clean harbors is all about.

Another key takeaway from Q3 is the unprecedented demand we saw for our network of disposal assets across from any verticals, particularly chemical in general manufacturing.

We are benefiting from strong tailwinds as U S manufacturing continues to generate record levels of waste and stricter regulatory regulations in retail and the other markets are generating higher volumes for our facilities.

Through our safety clean branches, we are seeing more containerize waste and ever coming into our network.

This is a direct result of the reorganization we undertook at the start of 21, so focused both parts of safety clean business on what they do best with.

With a record level of demand across our business Parliament clean harbors is at an all time high and we are committed to continuing to attract and retain great people.

Since the start of the year, we've grown out direct labor force by nearly 1500 employees on a net basis.

As a result of the ongoing investments in our people turnover continues to decline, which is a trend that we hope will expect to continue.

And one more thing we are continuing to little to deliver great returns for our shareholders.

Return on invested capital is back into the low teens and that has tripled over the past five years.

The company today is clearly extracting great returns on all our assets.

Oh I see results are even more impressive considering that we completed the second largest acquisition in our history last October with H P. C and really have not yet fully realized the potential of that transaction.

Turning to the segments on slide five. The addition of H P. C accounted for a little more than half of the 46% increase in environmental services revenues. We also benefited from organic growth <unk>.

[noise] rated by higher disposal and recycling revenues and our facilities.

Missing gains and increased service demand.

Incineration utilization was 86 per cent and a quarter, an average incineration pricing increased by 10%.

Landfill volumes rose by 38%.

Reflecting our strong base business and more waste project opportunities.

We capitalized on a busy summer season in our industrial services group as we continued to enjoy steady contributions out of H P. C.

And at the same time field services grew 29% through emergency response projects and the addition of H P C's utilities business safety.

Safety clean environmental grew 23% in Q3 as the team continues to drive healthy demand for its core service offerings looking.

Looking at our environmental service segment profitability adjusted EBITDA growth outpaced our top line, increasing by 57% as we've leveraged our extensive network of locations in assets.

Pricing kept pace with inflation and combined with our costs and productivity efforts.

We raised R E S margins by 120 basis points from a year ago.

Moving to slide six <unk>.

Revenue in our Sks segment was up 34% in Q3 on the strength of increasing pricing of both our base oil and blended products versus year ago.

We also achieve growth in the recycling services, we offer in this segment, including oil filter collection and waste any freeze recycling.

Adjusted EBITDA rose by more than $32 million or 46%.

The Sks S team continues to capitalize on favorable based on market conditions and available wasteful volumes to maximize profitability.

Wasteful collection volumes increased as we gathered 62 million gallons, a favourable cost levels compared with 60 million gallons a year ago.

Sales of blended products and direct volumes in Q3, we're in line with our expectations.

Given market conditions, including the ongoing additive shortages in the industry and the profitability available to us and our base oil.

Turning to slide seven we're evaluating opportunities to execute on all elements of our capital allocation strategy.

On the M&A front, we continued to evaluate both bolt on transactions and some large acquisitions that would provide us more permanent facilities <unk>.

Leverageable assets or support our lead to ship in a particular market.

We are continuing to maintain a strong balance sheet and given the potential for future economic downturn, we want to ensure we have the flexibility to be opportunistic we.

We also continue to invest in our business to drive additional organic growth.

For example, in Kimball, Nebraska 180 million dollar Bill dose of our new state of the art incinerator is proceeding on plan.

Recently, we built a 66000 square foot warehouse that will help us through the winter construction phase and we've already poured more than 7000 yards of concrete that's the facilities foundations take shape.

And while we wish we could accelerate the timeline, that's 70000 tonnes of capacity will come online in early 2025.

We're also expanding cell capacity at several of our key landfills. This year to prepare them for greater project volumes in the coming years and Michael touch upon the debt and share repurchase elements of our strategy in his remarks.

Looking at head, we expect to conclude 2022 with a strong fourth quarter. We continued to believe that are key markets are in great shape.

Based on a number of phases favorable domestic trends.

Reshoring initiatives.

Infrastructure, Bill New environmental regulations, such as P fast and plans among high tech manufacturers to significantly expand production of semiconductors, EV batteries and other products.

With environmental service, we continue to maintain a record backlog of waste unhealthy demand for a network of scarce disposal and recycling assets we.

We anticipate a strong finish to 2022 through a combination of based business and project work all our service businesses are entering the final quarter of the year on a positive trajectory, we're continuing to hire as rapidly as possible across our environmental service segment to facilitate additional <unk>.

Both going forward, while also lowering our third party spend.

With an S. K S. S. The record results were achieving this year demonstrates the benefit of having it as a standalone business and how well we can now manage both ends of our re refining spread.

Are we refining business is executing well in all phases from from.

From collection to production to sales, we are experiencing growing interest in our sustainable products, including our recently launched clean plus brand as more customers seek ESG friendly solutions, we remain confident that the value of our base oil versus the general market will only increase in the year is.

Ahead on the collection side of our spread we are continuing to gather the volumes necessary for our eight re refineries at rates that are better than historical norms.

Really we believe this is due to the impact of volume of 2020 on the available slot supply in the market. The internal changes, we made to the organization, which better capture the value of our collection services and overall continue improvements in our systems and transportation.

We increased our annual adjusted EBITDA guidance to more than $1 billion, which reflects the acceleration of demand for environmentally focused service and products and this inflationary climbing we're continuing to execute on our strategies for pricing.

Cost mitigation and operational efficiencies to drive our margins, we anticipate leveraging the strengths of both are operating segments to achieve record top and bottom line results in 2022.

So with that let me turn it over to Mike battles Mike.

Thank you Alan and good morning, everyone.

Turning to our income statement on slide nine Q3 revenue increased to a record 136 billion over 20% of that growth was organic and HBC industrial continued to perform to expectations.

Adjusted EBITDA was 67% higher than a year ago coming in at 386 million statically.

That equates to a margin and pointed to 6%.

Penn basis point improvement from Q3 of last year.

We achieve this record market performance in the quarter.

By improving both gross profit margin and exercising strong controls the rash TNA spending and all three of our business segments.

Gross margin improved 40 basis points to 33.2%.

In this environment, we've proven our ability to price through inflation and improved gross margin to productivity and operational efficiency gains.

SG&A as a percentage of revenue improved substantially to 11.1%.

Around 280 290 basis points in Q3 2021.

The improvement demonstrates our success and leveraging the HBC acquisition and a number of other initiatives to reduce not available cause.

Even with approximately $400 million more in revenue R.

<unk>, an absolute dollar basis rose less of $19 million.

Largely consisting of the addition of SPC.

For full year 2022, we continue to expect SG&A expenses as a percentage of revenue to be approximately 12%.

<unk> 2021 level.

Depreciation and amortization in Q3 increased as expected to $88 $4 million largely reflecting the addition of HBC, but.

2022, we continue to anticipate depreciation and amortization in the range of 335 $345 million.

Income from operations in Q3, essentially double $209 million as a result of by 43% revenue growth combined with our efforts for across the board margin improvements.

Net income for the quarter was $135.8 million more than double the figure from a year ago.

Turning to the balance sheet and slide 10.

Cash and short term marketable securities at quarter end with $514 million.

Up approximately $100 million from June 30th.

We ended two three with that just over 2.5 billion.

<unk> done a net debt debited basis for the trailing 12 months has now improved to approximately two two times <unk> north of three times it started the year.

Based on the mid point of our guidance, we expect to reduce our leverage to less than two times by year end.

A weighted average cost of that is currently 428%.

70% of our debt is that fixed rates.

Turning to the cash flows and slide 11.

Cash from operations in Q3 also more than doubled to $225 $6 million.

Capex net of disposals with $94 $4 million up about $50 million from a year ago.

This is primarily driven by SPC and the ongoing construction phase of in Nebraska incinerator.

The new incinerator accounted for $13 million in Q3, and approximately $27 million a year to date.

We now expect that project to be in the neighborhood of $40 million to $45 million for 2022.

Dusted free cash flow in Q3 was a record $131.2 million compared with $61.1 million in Q3, a year ago.

For 2022, we now expect a net capex to be in the range of $325 million to $345 million.

Seven Q3, we bought back 109000 shares of stock at a total cost of $10 $5 million.

Year to date, we have purchased 500 485000 shares at a cost of $44 $2 million for an average cost of just over $91 a share.

We have approximately 110 million remaining under our existing buyback program.

Moving to slide 12 based on our third.

Third quarter results in current market conditions for both are operating segments. We are raising our 2022 adjusted EBITDA guidance to arrange a $101 billion to $1.3 billion with the mid point of $1.2 billion.

This is how this here's how our revised full year 2022, adjusted EBITDA guidance translates to segments.

And environmental services, we now expect adjusted EBITDA at the midpoint of our guidance to increase approximately 42%.

Full year 2021.

Demand for our disposal and recycling facilities has enabled us to drive more volumes of high value of waste streams all year.

And we're benefiting from a full year of the contributions from HBC.

Our pricing and strict cost controls have also made a significant positive impact on our profitable growth.

<unk> asked we anticipate full year 2022, adjusted EBITDA at the midpoint of our guidance to increase approximately 37% of 2021.

This guidance reflects our strong Q3, along with recent Basil pricing trends in the market and the seasonal slowness that the industry typically sees in the fourth quarter.

And our corporate segment at the midpoint of our guide we now expect negative adjusted EBITDA to be up approximately 89% from 2021.

The year over year increase is largely due to the addition of HBC corporate cost for a full year as well as wage inflation.

Offset by lower 700, and integration expenses paid with a year ago.

Based on our third quarter free cash flow results higher interest rates and the latest working capital assumptions. We now expect 2022 adjusted free cash flow in the range of $260 million to $290 million or $275 million at the midpoint.

Along with higher caste interest payments due to rising rates. There are two primary operating operational factors that ultimately increased are working capital needs through the remainder of the year both timing related.

First a rapid revenue growth has been strong than even stronger than we expected.

Which was resulting in higher upfront expenses from a working capital perspective.

These expenses like payroll fuel and supplies were paid much faster than we can collect the cash from a revenue generated creating those timing, creating a timing item.

Capital will be collected over the next few months as those received receivables come in the door.

Second in light of ongoing global supply chain disruptions, we made a strategic decision to increase inventory of critical supplies at our facilities. We're.

We'll manage our business for the long term, it's imperative that we be there for our customers when called upon.

Combination of those two items.

It means that are working capital for 2022 is more than $50 million above what we anticipated when we spoke to you in August .

We fully expect are working capital needs to return to normal in 2023, as we collect receivables in a timely fashion and use up that inventory.

Assuming any increase in that that going forward in the current ageing of a receivable buckets is all consistent with historical levels.

We still have to go through a year at budgeting process, including setting our capex expectations developed by 2023, adjusted free cash flow guidance range, and we will share in February .

However, I would anticipate that next year's free cash flow, even with as much as $90 million spend plan for a kimble incinerator will be well north of $300 million.

In summary, Q3 with another strong quarter for clean harbors led by disposal network and management of our re refining spread combined with good contributions from our service businesses.

Margin performance in the quarter was again terrific as we capitalize on robust demand will operationally addressing inflationary pressures to intelligent pricing and costs mitigation.

Our near term growth prospects remain promising.

Based on our staff expected strong Q4 and pipeline opportunity for 2023, we are maintaining a bullish outlook.

While we need to run through our budget process in the coming months and are not providing any preliminary guidance for next year. Today, we do expect another year of profitable growth for clean harbors in 2023.

Let me conclude by saying that personally I'm thrilled about the next chapter clean harbors and working closely with Eric as <unk>.

Okay organized formed a great working relationship over my nine years with the company.

I am thankful to our board of directors and Allen for the opportunity and the belief they have shown in me and Eric.

While we recognize we have big shoes to fill.

Confident in our ability to continue Allen's legacy of success at the company.

Before we open up the call for questions I know, Eric wanted to add a few comments as well Eric.

Thanks, Thanks, Mike and good morning, everyone.

I would first like to take the opportunity to publicly thank Alan for his tireless leadership for the past 42 years you.

Not only built the largest environmental service provider in North America, but in the process you transform the industry itself into something that is far more compliant and safer than when you started.

And clean average today is unmatched in hazardous waste capabilities.

Graphic of coverage service offerings and the quality of our team thanks to Alan's efforts.

I'm personally excited and honored to lead the company and the co CEO rule.

Clean Harvard's has been my home for 32 years, the last 23 of which have been working directly for Allen.

For those of you that don't know my background. My path here is similar to Alan and then I started on the front lines as a field lab pack chemists and one of our branches in 1989 and rose through the organization at.

At different stages in my career I've been the general manager of several of our facilities and of overseeing both our disposal and our environmental business before being named Chief operating officer in 2015.

Work closely with Allen during the last two decades and nowhere industry well they're.

There continues to be significant opportunity to profitably profitably grow this company for the benefit of our employees and our shareholders.

I know what makes this company prosper and look forward to working with Mike to extend Allen's 40 year plus track record of success with that operator, please open the call for questions.

Thank you we will now be conducting a question and answer session. You would like to ask a question. Please press star one on your telephone keypad.

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Participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please while we Paul for your questions.

Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your questions.

Hey, good morning, guys.

Hey, congrats on everything, including the <unk>, Eric I know there's all.

Out of hand, wringing about a potential economic slowdown and it sounds like your backlog is very strong maybe even at an all time high Hey, do you think that even if things slow down a bit next year the eating some of that backlog could maybe help.

That yes in 2003.

Yes.

Tyler as you've mentioned are deferred inventory backlog continues to be very strong or volumes, finishing the year are strong.

We do anticipate to work down a little of that backlog as we progress through the fourth quarter and into the first.

And we do expect it smoothed out.

2023, but we do anticipate continued strong volumes throughout the whole network with strong incinerator utilization.

Yeah perfect. Okay. That's that's very helpful. In my quickly.

Okay.

This year.

[noise] Tyler you're breaking up can you repeat the question. Please.

Sorry.

Let me switch over hey.

So sorry.

The guidance, though to be clear does not include the.

17 million dollar divestiture on the cash flow side this year.

The divestiture of of Airborne in June .

Yes, let's talk.

The cash flow guidance includes that cash flow guidance today includes divestiture. It doesn't include the proceeds now.

And now I get it yeah yeah.

Not include any does not include any M&A, nor any divestitures.

Okay, perfect and it just seems like if we back into Q for interest expense.

It's kind of call. It circle 35 million I mean, if we baseline that through into next year is our.

His interest is gonna be something like a 25 million dollar headwind next year.

Yeah, I'd say so.

Take a guess at what interest rates are going to be built as we thought about kind of 2023 preliminary cash flows we do have it going up a bit.

Okay, and then just that just sounds like there's a lot moving all kind of moving pieces in free cash flow next year. So just wanted to see if I've got some of the the big pieces. So there's the potential for cash interests to step up there's probably a potential for cash taxes to step up with some of the depreciation step down.

It sounds like Capex will likely be up because of Kimball, but then maybe working capital is going to be a good guy are those kind of some of the big conceptual pieces.

Yeah. The other thing too Tyler's that we had at.

As part of that cares Act, we did differ a portion of payroll taxes back in 2020, and we have to repay we pay to repay a portion of that about 18 million in 2021, and we're going to pay another 24 million here in 2022, and so then we'll be done.

So that in my mind to be gay.

As you think about kind of 2023, I think in my mind that kind of offset some of the interest expense.

Yeah.

Okay perfect. Okay, I will turn it over thank you.

Thanks Tyler.

Thank you. Our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your questions.

Thank you very much and al and it's been a lot of fun doing this for the for the last 35% of your 42 years. So.

Where do you take the boat first to go fishing.

[laughter].

So it was a tuner of season opens up Michael I'm there [laughter].

Could we touch on.

Continue with the thesis of twenty-three you've had one heck of a 22 and as the market's doing everybody beats or twenty-two and they pivot mutually to 23, one of the things you've done and 22.

Which again in my 35 years, I haven't seen price like you'd never ever.

Industry.

How much of it.

As part of organic growth.

As a permanent change in the business model going into twenty-three.

Yeah, Michael It's a good question because in 2022 with high inflation and we did we were aggressive in pricing.

I see that even and I think we've learned that we had scarce assets and we can use them and we can price accordingly, because I think that there's certainly demand for our for our services given at strong safety and compliance and a strong team is good pricing opportunities I think as you think about 2023, I don't see that changing I see that.

As others have said I see that as an opportunity so let's see inflation comes back down.

Why we kind of changed tack on this I feel like we have set the set scarce assets that have a huge amount of compliance associated with them a huge amount of regulation that it's important that we maintain a well and that all costs money. So I feel like I feel like that they think about 23 early days, we have to go through our budget process, which we're going through right now.

But I feel really good about the pricing as we well into 2023.

The other thing I would say just one last point is that.

We also we have a pipeline we use salesforce, we have a pipeline of opportunities some of which are very near term Q4 related but some relate into 2023 in that pipeline remains very strong. So I'm more bullish than it was let's say 90 days ago thinking about 2023, because not only are we going to have a strong Q for which we talked about this morning, but the pipeline of.

<unk> looked at 23 remains really robust and so that's going to give us a good running start if you will into 2023.

Okay.

Just a.

Loose and around that.

We've had an unbelievable price cause inflation, let's say in place and asked to normalize at some point, we'll pick a number call at 4% historically and a 4% world.

You weren't pricing at four relied on operating leverage survive and a little bit of price. So the way to think about is if we have inflation a four.

Price at four is not an unreasonable way to think about part of the organic growth.

Yeah, I would say that's the case I think that's I think again as we're putting a budget together I think that certainly in certain parts of our business, especially in.

Technical services and feeding into our landfills incinerators containerized weights and safety clean Michael you know these businesses. They have they have we have the ability to continue to price and price aggressively cole.

Cool.

Everybody's trying to figure out what happened said Sks S. As the world rebalancing on supply demand.

Can you give us some sense of how to think about what the premium might be in the selling price for the imbalance in the supply demand.

And how that correct.

But we're going to end up at a much higher low total profit of sks because by amount of 2020.

And better overall spread management.

Oh that was a lot, but yes, Michael Michael I'll kick this off and then.

Like can that in.

Since we separated the business out 21.

Coupled with I'm home.

I think.

We have I think done a really good job of managing that side of the business better than ever before and I think we're growing our volumes, we're seeing the market as long on the used motor oil side.

Those those are all good signs we also know that.

With diesel and fuel oil being sort of a 40 year low inventory level that is going to be a lot of biggio moving over into that side of the the.

The refining process, if you would and so we were not anticipating any significant change here.

And quite frankly.

Premium that we are now starting to get for our base oil I think is a reflection of really people wanting to have a recycled product.

Many customers are now being required to have some percentage of their base will be refined and so the demand for that both here in the U S as well as in other parts of the World, where we're getting a lot of inquiries aren't so we really think that.

We still have a lot of runway in that business, even though there has been some global disruption with the Ukraine or.

Okay. So just so I think I heard that Craig we used to have to take a discount on price now your suggestion year. It on part of our premium so even if there is a supply premium.

Supply demand premium in bay soil, those too probably offset or not work to the good.

Yeah, I'd say that plus we didn't really sell a lot of blended product this year, because they were additive shortages and so forth.

The view of that if the world normalizes.

What we think is going to happen there'll be more added and there'll be more of an opportunity to sell our blending oil which has a higher price point at a higher overall contributions all right.

Of course, everybody's wringing their hands that defense going to throw us into a recession, we've got what's going on in Europe . When I look back at the second half of 15 in all of 16, the last true industrial recession I'm not sure what we call the pandemic, but the true industrial recession.

<unk> take out your upstream energy exposure.

Yeah, there's somewhere down 810% and EBITDA total was sort of what happened in that 18 months.

What's different about the model today that.

Would dampen some of that down and more importantly, it was only down 810 versus the cyclical markets were down 20 and 30.

I think the company is.

Went through a number of recessions in crude crashes during the 2014 and and other periods.

The company has really been opportunistic to continue to grow.

During those downturns in being positioned in a in a in a way where we could take advantage of of.

Maybe competitors weakness out there.

I think we're in a great shape financially here with our balance sheet, where it's at to grow to any recession like we have in the past four or five that we've we've experiments stay up Michael.

Okay.

This is Eric Michael I'll add to that that.

I think today.

Pass city of the hazardous waste disposal market.

<unk> then at that time.

Obviously by some captors coming off line.

Our utilization continues to be strong the utilization in the industry is strong so there's much less capacity overall in the market than there was in the past.

The onshoring of manufacturing like we've spoken about clearly, we're seeing that and new construction increased volumes that hold disruption in the supply chain has really forced companies to re look at.

Staying closer to home rather than global sin more local and global and I think that's really helping our business here in North America.

The paper AVC anywhere, but China.

[laughter].

One last for me is big competitor is about 10% of the market and incineration has been offline due to a vendor, causing a fire.

Any visibility when that capacity comes back on.

It's our understanding Michael that the capacity comes online in mid December and there'll be ramping up again into the first quarter.

Thank you very much.

Thank you.

Thank you. Our next question is coming from the line of January ravaged with Goldman Sachs. Please proceed with your questions.

Yes, hi, good morning, everyone.

My character congratulations.

Thanks, you too.

Mike Erica I'm wondering if you just talk about how you envision co CEO rolls.

Each of you be focusing on one of you take one of the business.

Can you just give us a bit.

Contacts then.

I know, it's early but any potential strategic priorities that you would outline for us.

At this point, obviously to the core strategies decision, but.

I'm sure.

Each of you will.

Flavor to the rule.

Yeah. So yeah, Jerry so the answer is the purpose of getting the announcement out today was so that we can have kind of opened in conversations with your organization is that how we go forward certainly we've talked to the board about directionally, but we have to work through that process and that's why we announced today. So we can add kind of good conversation with the team is that.

Kind of who does what the fact of the matter is that as as Allen says that we've given Eric and I kind of more and more responsibilities and so those kind of those roles are kind of well defined and as I said, Eric and I have worked well together for the past nine years and will continue to continue to do that at the end of.

<unk> in my opinion it as co Ceos, we're responsible for all of it and so I think that that is going to be the way, it's going to work and obviously, we are going to divide and conquer and we don't need to all be together and everything but I think that is going to be it can be a great a great working relationship like it has been continuing to work with Allen Allen is still the chairman the bodies still working as a technology officer. So.

Returning to lean on his knowledge and experience and as we go forward.

Okay.

And then given the really strong performance and.

Environmental services.

This year can we just revisit the longterm.

Margin trajectory, how should we think about the level of margin expansion that you folks are targeting on an annual basis within the context of.

Really strong performance we've seen this year.

Yeah, Jerry So one of your colleagues kind of in Q1 asked us we're going to get back to 2022.

Two 2021 margins in 2022 for Es and I'm here to report that based on our kind of R. Q4 numbers that we talked about this morning, we're going to be able to repeat those numbers by quite a bit in the so I'm really proud of the team of rallying around you know kind of pricing and cost controls to kind of get to that answer so es as going.

Finish, let's say above.

We landed for the year in 2022, even with the slow start that we had and Q1 of 2022.

So in my view as I said earlier I'm really bullish on on 2023 and beyond our ability to execute on cost controls and and strategic pricing intelligent pricing to bring margins up from there, so we're going to and and and.

Yes for the year in the low twenties, I think I think it grows 30 50 basis points from there I really believe that our ability to to manage.

Our contracts.

Price intelligence make sure of the plants Manuel on safe and compliant I think those all those things continue and and you see it from our safety stats and from our results you see this morning.

Yeah, Jere and this is Erica would add to that I think we continue to be opportunistic to drive costs out of the business and we have.

Things and play right now that will take more effect into 2023 and will continue to drive price everything that consistent with our strategy over the past year. A particular there continues to be opportunity you there.

Subaru and lastly on safety clean and can you just talk about how you view the full cycle range of earnings power.

In that business you spoke to a lot of the structural changes in your prepared remarks.

I'm wondering if you could.

Date outside your framework for what purpose through cycle performance looks like in the business today, given all of the all of the items that you outlined earlier in the call.

Yeah. Jerry this is Mike I'll I'll take a shot at it.

So we're going to end the year at the midpoint of of the guidance. We gave this morning at 310 $211 million I think what you're asking is kind of how that goes kind of goes forward.

Again, I feel as Alan communicated with our kind of managing the spread really well increased regulations.

Managing kind of both sides of the business as a separate business you really I really think that this continues and and the focus on blended products in 2023. The acquisition. We did in 2022 is going to have come some returns of 2023.

The cleaner clean plus.

Recycled oil.

Argument that we've made I think has been getting a lot of traction both here in the U S and globally. So again I feel kind of really bullish about about 2023 and beyond for that for that SK business and.

If their macro factors that are helping us this year I mean, I think that we have a lotta internal factors are gonna help us next year, and so regardless of what happens to base oil and crude oil and and and things like that I think will be able to manage through that like we always yet.

Super.

Thanks.

Thank you.

Thank you. Our next question comes from the line of David Massey with Bear. Please proceed with your questions.

Thank you good morning, everyone and Ellen.

<unk> like Eric Congratulations to all three of you.

Maybe I missed it.

Do you have any initial comments on the boards direction for succession and the C. O O N CFO rolled it seems like the clock is ticking here in a relatively short timeline.

Insights you can provide.

Yeah. So.

Again as I said earlier, the purpose of the announcements to get to talk about kind of Allen and the CEO role. We recognize the fact that we need to have the CFO and we're working down that path.

Have a few months in front of us Dave I think that.

Again, the purpose of today was more to talk about kind of where we are from a CEO standpoint did today and tomorrow I'm still to CFO and Eric's instilled this yellow and we and we do have to work on that we have kind of good good plans to do that and we've already shared that with a boy. We just got the purpose of today is to have kind of more.

Open and honest conversations with the broader organization. So we can move forward.

And we just said this is Eric gave that.

Obviously succession planning has been in place for quite a while now and we've worked on that and continue to have a plan as we work forward going on to the first quarter here on those rules.

Okay. Thank you for that and.

More operationally looking down.

Broad list.

And markets here, even if they are all growing and doing well if you kind of had a single out top two versus bottom too you just give us an idea cause you have a pretty good window into the economy here just interested in.

Which are sort of the top of the stack rank, which are the bottom.

Well.

That'd be a couple of us on a couple of things I would probably mentioned is that if it wasn't for the additive shortfall in our.

And our sks.

We would have had a much stronger year, they're so we've really been constrained both ourselves, but also our customers that buy our base oil have also been constrained because they haven't been able to get.

The attitudes they need.

The second thing would be is.

We're into the <unk> acquisition for a year and I would say that.

It's really the early innings here in regards to a margin improvement pricing cost management.

I think that acquisition likes the safety clean acquisition in 2012, I think is really in the early days and it's gonna be a home run for US here. We're really excited about that when you. When you think about safety clean back 10 years ago at $150 million EBITDA and today a five.

500 million dollar EBIT kind of business.

I think.

It shows where we put the right systems and management in place and processes, where we really can drive margin and those numbers those safety clean numbers would even be better. This year. If it wasn't for some of the headwinds we had on the additive front so.

I think those are really too.

Thanks to mentioned, Mike I'm not sure if you want to add.

Points here or not or Eric.

I think I would add Ellen that.

Instead of a tough too I think there's there's more of like a top 10 I think it certainly there's been many strong trends across various areas of the business. This year, our technical service branch business volumes and collections very strong field services, we've grown within utilities accounts on our branch collection business.

And mentioned earlier or Containerize waste volumes and collection are at an all time high throughout the Ksf's business used motor oil collections very strong.

The base oil solar sails as well very strong. So there is many top items I think totally aligned with what Alan said there on those two items that we continue to need to work on but.

Much opportunity there.

Terrific. Thank you all.

Thanks.

Thank you. Our next question is coming from the line of Jim was Judy with Needham and company. Please proceed with your questions.

Alright. Thank you good morning, I'll add my congratulations on the transition maybe.

Maybe to that last point about.

The shortfall that you've experienced.

Is that.

I think like I think you alluded to some increase in inventory of critical supplies I Wonder if you could elaborate on that.

Opening remarks.

Sure Jim So two things have happened. So first of all we made a strategic decision to say with.

With problems that other plants in our network, we want to try to avoid any types of down days and the unplanned downtime in our incinerators we.

Looking at looking at the piers that you've I'm sure you cover.

There is a tremendous demand is Eric said earlier for network capacity and so we want to make sure that our plants don't suffer an unplanned outage for any extended period of time and so to do that we want to make sure that critical supplies. It's bears.

Are there and so we made that and given the long lead time for some of these supplies coming from Asia and Europe . We wanted to make sure that we had those in place at our site. So that if there was a problem we could get back online relatively quickly. So we made the strategic decision that to add a little more inventory of critical spares kind of across the net.

For our facilities to try to prevent that so that's a bit about a bad guy from a cash flow perspective, I think that a boat well from a strategic standpoint as far as you think about the long term.

Importance of the incinerators and our other facilities to have these critical spares. So that was that was that that was that was the deal on that let's say the spare side.

On the other side, that's that's just the cost of oil being a little higher putting a little more in our tanks to try to make sure that we can service our customer through the winter months and be strategic about the pricing as we go forward. So we have added a little oil in our in our in the inventory and I think that again R bode well into 2023.

Got it thanks.

How old are you guys thinking about that piece as opportunity.

23, and and maybe it's more meaningful and 24 does that when you think it has the potential to be have a meaningful impact on the business and I'm wondering what kind of contribution yeah. My my dad I don't know a base case look like in this area of the business.

So Jim this is Eric I'll answer that our strategy.

Continues to be around predominantly taking advantage of high temperature ruck growth permitted incineration at our units as we mentioned.

A quarter ago, we have undertaken.

Compliance testing and have proven well that.

Our incinerators have the technology to properly dispose destroyed <unk> contaminated material that being said, we also have other opportunities to manage those contaminated waste into our landfills as well as treatment systems that we can treat water on our customer sites and perform remedial.

Activities and we continue to build out our portfolio to take advantage of that we are seeing a continued growth in our pipeline hard to at this point really define what that contribution might be into 2024, but need needs to be said that.

<unk> and how we work with our customers contaminated soils in particular and water treatment.

Pipeline continues to grow here for us.

And then.

Final question for me is.

I guess you've anniversary the Hipc acquisition, one last month and appears to have gone well I'm wondering how has the the integration of that.

Perhaps impacted or is impacting the way you're thinking about the near term opportunities intermediate opportunities in terms of future.

Future M&A.

Yeah, Jim. So this is Mike I would say that our focus has been to integrate hydrochemistry.

To your point I think it's been a good success the down points I think there's still much work much more work to do and there are probably in the early innings as you mentioned earlier.

I would say that our focus has been too.

Focus on that integration and I think I'm gonna end the year in really good shape from a cash in the balance sheet standpoint, without leveraged being under two times Levered I think there is plenty of opportunity pounding the smaller nature of tuck ins that are out there that we continue to look at is Allen said earlier too when if there is a recession coming in 2023.

Some of our some of these companies may not may not come out so good and theirs and we want to be optimistic that if there are opportunities out there to buy kind of permanent facilities and other key assets that were there and so we are going to try to be as as nimble in our in our in our strategic priorities cash flows and around the balance sheet to give a give ourselves that opportunity that if there were.

The problem, we can take advantage of it.

Thank you.

Thank you. Our next question comes from the line if no. Okay with Oppenheimer. Please proceed with your questions.

Thanks for taking the questions and congratulations Allen Eric in like.

<unk> for all of you and I wanted to ask about this succession. There is a fair amount of business literature on what makes that cosio organizational structure successful right. I mean, you you need the right mix of personalities and shared values and.

Complementary skills set backing of the board and then really clear responsibilities and decision rights are being delineated in.

Eric and like I think you check those boxes someone obviously in a lot of respects it seems important to communicate to investors over the coming months, how you're delineating those responsibilities. So just when and how would you anticipate communicated that to the street.

[laughter] no. This is Eric so will as Mike said earlier will continue to work out the details of the internal organizational structure.

Throughout Q1 would be more prepared to talk about that after we get through Q1.

That being said.

As you mentioned, we do check many of the boxes to have a great co CEO relationship here.

Supportive Allen the support of the board we work together for a long time, we've shared many responsibilities to get to the point that we are today and so it is just an excellent structure here for us clean harbors and I'm excited to work with Mike and the.

<unk> will be disclosing more of those details in the future, but needless to say you're right. We do check all the boxes here.

No I would add to that to say that we are going to have some form of investor day in 2023, not sure exactly the exact day, but I think it's important to kind of do you point to kind of talk talk about kind of our strategy going forward. How we do enables responsibilities who's who on the team and I think that's going to be good.

Good opportunity to do just that.

Okay, Great. We're looking forward to that and then wanted to come back to pricing, which a lot of folks have discussed alrighty on this call.

It seems like you know there are a lot of lepers for continued price momentum as we we go into 2023, maybe you could talk about some specific pricing actions that were taken in this quarter.

I think in prior quarter as you can help us unpack a little bit price versus volume contribution within parts of the Es business and then how to think about just taking the impact of up your pricing Atkins year to date and how much that will so far into growth for next year.

Yeah I know this is Mike. So there are a fair amount of pricing actions we've taken.

Q2, Q3, and hearing Q for that will have kind of good good rollover impact into 2023. The challenge you into our costs have gone up as well whether it be labor, whether it be trans whether it be supplies and those costs also rollover into 2023, and so I think that will have a I think we'll have a fair amount of good rollover of the pricing.

Initiatives that we put in place and that should both well certainly in through the first half of the year. My view is that we're going to continue to drive price into 2023.

Four new price increases and I think that's going to help us kind of.

US survive any type of down turn that we see in any and markets.

Okay. Thanks very much.

Next door.

Thank you. Our next question comes from the lineup Lehrer solid with C. J S. Securities. Please proceed with your questions.

Hi, Good morning, it's Pete Lucas for Larry you guys have covered a lot. So leaves me with just one question on the industrial side can you speak about the timing of major turnarounds had manufacturing facilities have a lot of those been delayed over the last 12 months and perhaps can we see more of those in twenty-three as a potential offset to a slowing.

Enemy.

Yes, Peter So this is Eric R.

The course of this year the industrial turnaround business has been very strong as plants delayed their turnarounds into 2022. So we had a very robust turnaround season more from the point of this turnarounds were extended more than usual because of the amount of work that needed to be performed.

That being said, we all know that.

The refinery marketing chemical markets. They continue to run very very strong and we anticipate continued strong turnaround season, probably a little bit shorter turnarounds in what we experienced Q2 and into Q3, but continued to be robust because they are running full tilt and making products and refining oils and so.

We're very bullish about the.

The turnaround season, and strength continually especially with the.

Combined HBC platform on an industrial business.

Oh fantastic that wraps it up for me and congratulations to all of you on the succession plan.

Thanks Pete.

Thank you. Our next question comes from the line of Jane creamy with da Davidson. Please proceed with your questions.

Hey, good morning, gentlemen, congrats on the strong results in again, Congrats Allen, Mike and Eric for each of your respective transitions.

Alright.

So a lot of questions an app, but one touch on SG&A, a little bit more per cent of arod's right. It reflected a fairly significant improvement, which I believe you alluded to be due to the fact that consolidation with H B C. But one other internal initiatives are you taking that helped with the improvement and what should we be expecting moving forward.

Yeah. This.

This is Mike.

The data is pretty is pretty good when you look at corporate corporate cost or SG&A. Both of those kind of ticked up moderately given our large kind of revenue growth and there's a lot of things that are out there that that we've done that.

To manage our cost structure there yeah some of that as simple as far as third party spend and project. We tried to do a lot more things internally this year versus using third party resources to help US site consolidation continues to be a priority to try to manage our sites and limit the amount of rent expense, we have to pay for our operating.

[noise] locations, we we've done a lot of that there's still much more work to do we also have you just kind of lower cost jurisdictions to help us offset some of the cost of labor and that's been a helper as we look out for the past year or two and most importantly in here and like gear three of that exercise. So all those things have really driven.

Driven kind of good good cost management on the SG&A in the corporate side I see that I see all discontinuing into into 2023, I don't I don't see ourselves kind of slowing down we do manage head count very well we have tried to hold the line on head count and remain a flat level head count as the business has grown that's been a big winner for us using.

Allergy as much as we can to kind of offset the incremental work and so I think that again I think all these things just continue on in 2023 and and also Zhang is part of our culture. You know, we try to run as lean as possible to manage and to manage our non billable headcount very tightly that doesn't change as whoever CEO has that.

Part of our culture and will continue to do that.

Yeah.

Thank you gentlemen.

Thanks same to you.

Thank you. Our final question is coming from the line of Scotland with Bloomberg. Please proceed with your questions.

Hey, good morning, everybody and congratulations all the way around on on the promotions.

And.

My first my first question is with regard to while I just want to push a little bit more on the.

And the oil recycling, obviously guys have been killing it the last couple of years space oil prices have been searching and now we're seeing and pull back a little bad I know the additive shortages an issue in terms of blending but how can we think about that business continuing to grow if indeed, we do see.

Continued pullback in base oil prices and are you confident data and.

An increase in the planning mix and.

Demand et cetera, well.

Enable you to grow that business or continue to grow it off of you know very strong levels last couple of years.

Yeah, the cell and I'll start out here, but certainly.

When when the additive shortage.

Normalizes, which probably will take place somewhere in this for a second quarter of next year.

Anticipate.

There'd be shifting more of our our sales back to where we were on the blended side because there was about a market for us there in a in a strong demand we have a direct organization now to sell those materials and have a number of distribution locations that we've built to support that effort.

But clearly.

We had continued shortfalls as we mentioned with attitudes, but also with with hydrogen as well I mean, our refineries were on allocation even for hydrogen this year.

We are putting it added capex to generate our own hydrogen and a number of our larger plans for that we're not going to get cut short again.

Cause we have been on allocation even C O two pressurized to to run our Baltimore plant was in a force was yours. So there's really been quite a bit of disruption. So when you think about 23.

Getting back on track with our blended sales program.

As well as some of the things that we've been able to be successful at with a byproducts coming out of our plants are asphalt bottoms are vacuum gas oil fuels all of those things that team has really done some great work and we think that momentum is going to continue through next year. So a lot of good a lot of good.

Headway there in the future I think.

Thanks, Alan one last one really quickly we haven't heard as much out of you guys over the last several years really on that.

Energy oriented business is.

Clearly.

Prices, where they are in with.

The growth potential we're seeing production an interest in that and U S shell fields catch or do you guys have any interest in may be grown the energy side of your business again or is that really not.

In the thought process here when you think about it.

He didn't want to get larger in or maybe businesses as you want to get into a newer or something along those lines.

Yeah.

You know our interest certainly is on the waste disposal side of activities that have gone on in the in the shale area, but that's really to the extent of our focus we really trying to grow our environmental business. We're really looking at how do we leverage those disposable assets like ever talked about.

Picking up additional CSV fs that would really help.

Get us some more.

Processing capabilities to feed our incinerators, particularly with kimble coming on.

And realizing that was the number of captives.

Considering shutting down.

Which is sort of an ongoing thing that we've seen over the last 10 to 15 years, we really want to position ourselves and that environmental space and that's really where our focus is.

Been in the oil and gas area, particularly up in Western Canada, We've got a strong presence in the oil sands, but it's all focused on industrial and that business has been doing very well for us this year.

Understood. Thanks.

Yeah.

Scott.

Thank you there are no further questions at this time right now like to turn the call back over to Mr. Mccain for any closing comments.

Okay. Thanks for joining us today, Mike, Eric and myself will be participating at the bird Industrial conference next week in Chicago. So we hope to see some of you there or a future investor events. Thank you and stay safe today.

Okay.

Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

[music].

Mmm.

[music].

Greetings and welcome to the clean harbors incorporated third quarter 2022 conference call.

At this time all participants are in a listen only mode.

Brief question and answer session will follow the formal presentation spending what you require operator assistance during the conference. Please press start zero on your telephone keypad.

As a reminder, this conference is being recorded.

Now my pleasure to introduce your house, Michael Mcdonald General Counsel for clean harvest incorporated. Thank you. Mr. Mcdonald you may begin.

Thank you general and good morning, everyone with me on today's call, our Chairman President and Chief Executive Officer, Alan S. Mckim, EVP and Chief Financial Officer, Mike Battles, President and Chief Operating Officer, Eric Gross Newburgh, and SVP of Investor Relations Jim Buckley.

Slides for today's call up posted on our Investor Relations website, and we invite you to follow along matters. We're 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.

Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions all as of today November 2nd 2022.

Information on potential factors and risks that could affect our results is included in our SEC filings. The company undertakes no obligation to revise a publicly released the results of any revision to the statements made today other than through filings made concerning this reporting period.

Today's discussion includes references to non-GAAP measures clean average believes that such information plus an additional measurement and consistent historical comparison of his performance Rick.

Reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release on our website and in the appendix of today's presentation let.

Let me turn the call over to our CEO and founder Alan Mckim, Alan Thanks, Micheal. Good morning, everyone. Thank you for joining us.

Turning to slide three.

Before discussing our quarterly results. So I wanted to touch on our other major announcement. This morning regarding executive management changes <unk>.

Next March 31st I'll be stepping down after 42 years of leading this wonderful company.

At that time, our Chief operating officer, Eric Grossman, Burg, and Chief Financial Officer, Mike battles will assume the role of <unk> and I will remain as executive Chairman of the board and Chief Technology Officer for the foreseeable future.

For the past several years aboard has discussed succession planning as part of its regular meeting agenda. So today's news has been in the works for some time.

The company is in great shape financially and as strong strategically with leading market share and all of our core businesses. We have built a deep organization and even recently strengthened our board.

A long term goal that I've had for a company has been to achieve $5 billion in revenue and $1 billion in EBITDA or margin of 20%.

It is a financial accomplishment, we're on the verge of realizing with our results in 2022.

Therefore, I felt to be the right time for me to step down as CEO and I made the board aware of my intentions. The board reviewed all of our options and decided that moving to a <unk> model was the best plan and most seamless transition.

As a founder led company we.

We elected to keep the senior leadership team together with me moving to an executive chairman role.

Are two outstanding leaders, Mike battles, and Eric Gerstenberger will take over running the company effective April 1st.

Over the next several months will transition responsibilities amongst the leadership team.

I will turn it over day to day responsibilities to these guys as my focus will shift to overall strategy M&A and driving technology. For example, we're in the middle of converting our ERP to Oracle from people soft. So I will continue to oversee our tech steering committees as well as completing several other strategic initiatives that are underway.

Mike and Eric are exceptional executives, who have clearly demonstrated their ability to lead manage and grow the company.

The three of US have work well together for a number of years and keeping that management team in place has been a top priority.

It has been my honor to lead this company since its founding in 1980.

Turning to slide for as we highlighted in this morning's earnings release, the company reported another quarter as strong results in Q3 exceeding $300 million and adjusted EBITDA for the second consecutive quarter with both segments contributing to our growth on.

On the top line, we benefited from H P C healthy organic growth and pricing that offset inflation.

Before we get into our segment numbers, let me spend a moment talking about some of the key takeaways from this quarter from.

From my perspective, the most important metric from the third quarter is not one that you'll see on our income statement.

It's our total recordable incident rate or TRA are a key measure of safety.

Our goal for 22 is to achieve an annual TRA are of less than one for the first time in our history. In Q3 are TRA R was just 0.65 and through the first nine months of 2002, we sit at 0.74, both of which are outstanding. So the team really has done an amazing.

Job all year of keeping themselves and each other as safe as we continue to set the standard for safety in our industry.

On a somewhat related note I also want to highlight the outstanding work that our team did during hurricane in <unk>.

We have 18 facilities in Florida, including several directly in the storm's path and the teams were able to get back up and running within days.

I'm happy to report that are hundreds of employees in Florida and other nearby states that were impacted by that storm, we're all safe.

And we assisted with.

Housing for some before they could return home.

I'm proud of how the teams all rally to help each other it's what clean harbors is all about.

Another key takeaway from Q3 is the unprecedented demand we saw for our network of disposable assets across from any verticals, particularly chemical in general manufacturing.

We're benefiting from strong Tailwinds as U S manufacturing continues to generate record levels of waste and stricter regulatory regulations in retail and the other markets are generating higher volumes for our facilities.

Through our safety clean branches, we are seeing more containerized waste and ever coming into our network.

This is a direct result of the reorganization we undertook at the start of 21.

So focus both parts of safety cleaning business on what they do best.

With the record level of demand across our business Parliament clean harbors is at an all time high and we are committed to continuing to attract and retain great people.

Since the start of the year, we've grown out direct labor force by nearly 1500 employees on a net basis.

As a result of the ongoing investments in our people turnover continues to decline, which is a trend that we hope will expect to continue.

And one more thing we are continuing to look to deliver great returns for our shareholders are return on invested capital is back into the low teens and that has tripled over the past five years.

The company today is clearly extracting great returns on all our assets.

Oh I see results are even more impressive considering that we completed the second largest acquisition in our history last October with Hipc and really have not yet fully realized the potential of that transaction.

Icing gains and increased service demand.

Incineration utilization was 86 per cent and a quarter, an average incineration pricing increased by 10%.

Landfill volumes rose by 38%.

Reflecting our strong base business and more waste projects opportunities.

We capitalized on a busy summer season in our industrial services group as we continue to enjoy steady contributions out of H P C and.

And at the same time field services grew 29% through emergency response projects and the addition of H P C's utilities business safety.

Safety clean environmental grew 23% in Q3 as the team continues to drive healthy demand for its core service offerings looking.

Looking at our environmental service segment profitability adjusted EBITDA growth outpaced our top line, increasing by 57% as we've leveraged our extensive network of locations in assets.

Pricing kept pace with inflation and combined with our costs and productivity efforts.

We raised our ears margins by 120 basis points from a year ago.

Moving to slide six <unk>.

Revenue in our Sks segment was up 34% in Q3 on the strength of increasing pricing of both our base oil and blended products versus a year ago.

We also achieve growth in the recycling services, we offer in this segment, including oil filter collection and waste any freeze recycling.

Adjusted EBITDA rose by more than $32 million or 46%.

B S. Ksf's team continues to capitalize on favorable based on market conditions and available wasteful volumes to maximize profitability.

Wasteful collection volumes increased as we gathered 62 million gallons, a favorable cost levels compared with 60 million gallons a year ago.

Sales of blended products and direct volumes in Q3, we're in line with our expectations.

Given market conditions, including new ongoing additive shortages in the industry and the profitability available to us and our base oil.

Turning to slide seven we're evaluating opportunities to execute on all elements of our capital allocation strategy.

On the M&A front, we continued to evaluate both bolt on transactions and some large acquisitions that would provide us more permanent facilities leverageable assets or support our leader ship in a particular market.

We are continuing to maintain our strong balance sheet and given the potential for future economic downturn. We wanted to ensure we have the flexibility to be opportunistic.

We also continue to invest in our business to drive additional organic growth for example, in Kimball, Nebraska $180 million build out of our new state of the art incinerator is proceeding on plan.

And while we wish we could accelerate the timeline, that's 70000 tonnes of capacity will come online in early 2025.

Looking at the head we expect to conclude 2022 with a strong fourth quarter. We continue to believe that are key markets are in great shape.

Based on a number of phase favourable domestic trends.

Assuring initiatives.

Infrastructure, Bill New environmental regulations, such as P fast and plans among high tech manufacturers to significantly expand production of semiconductors, EV batteries and other products.

With environmental service, we continue to maintain a record backlog of waste and healthy demand for a network of scarce disposal and recycling assets we.

Both going forward, while also lowering our third party spend.

With an S. K S. S. The record results were achieving this year demonstrates the benefit of having it as a standalone business and how well we can now manage both ends of our re refining spread.

Are we refining business is executing well in all phases from from.

Ahead on the collection side of our spread we are continuing to gather the volumes necessary for our eight re refineries at rates that are better than historical norms.

Cost mitigation and operational efficiencies to drive our margins, we anticipate leveraging the strengths of both are operating segments to achieve record top and bottom line results in 2022.

So with that let me turn it over to Mike battles Mike.

Thank you Alan and good morning, everyone.

Turning to our income statement on slide nine Q3 revenue increased to a record 136 billion over 20% of that growth was organic and HBC industrial continued to perform to expectations.

Adjusted EBITDA was 67 per cent higher than a year ago coming in at $386 million.

That equates to a margin and pointed to 6%.

Penn basis point improvement from Q3 of last year.

We achieve this record Margaret performance in the quarter by improving both gross profit margin and exercising strong controls over SG&A spending and all three of our business segments.

Gross margin improved 40 basis points to 33.2%.

In this environment, we've proven our ability to price through inflation and improved gross margin to productivity and operational efficiency gains.

SG&A as a percentage of revenue improved substantially to 11.1% down 290 290 basis points in Q3 2021.

The improvement demonstrates our success and leveraging the HBC acquisition and a number of other initiatives to reduce not available cost.

Even with approximately $400 million more in revenue R.

<unk>, an absolute dollar basis rose less of $19 million.

Largely consisting of the addition of HBC.

For full year 2022, we continue to expect SG&A expenses as a percentage of revenue to be approximately 12%.

<unk> 2021 level.

Depreciation and amortization in Q3 increased as expected to $88 $4 million largely reflecting the addition of HBC for.

2022, we continued to anticipate depreciation and amortization in the range of 335 $345 million.

Income from operations in Q3, essentially doubled to $209 million as a result of by 43% revenue growth combined with our efforts for across the board margin improvements.

Net income for the quarter was $135 $8 million more than double the figure from a year ago.

Turning to the balance sheet and slide 10.

Cash and short term marketable securities at quarter end with $514 million.

Up approximately $100 million from June 30th.

We ended Q3 with that just over 2.5 billion.

<unk> done a net debt debited basis for the trailing 12 months has now improved to approximately two two times at the north North of three times it started the year.

Based on the mid point of our guidance, we expect to reduce our leverage to less than two times by year end.

A weighted average cost of that is currently 428%.

70% of our debt is that fixed rates.

Turning to the cash flows and slide 11.

Cash from operations in Q3 also more than doubled to $225 $6 million.

Capex net of disposals with $94 $4 million up about $50 million from a year ago.

This is primarily driven by HBC and the ongoing construction phase of in Nebraska incinerator.

The new incinerator accounted for $13 million in Q3, and approximately $27 million a year to date.

We now expect that project to be in the neighborhood of $40 million to $45 million for 2022.

Just at free cash flow in Q3 was a record $131.2 million compared with $61 $1 million in Q3, a year ago.

For 2022, we now expect our net capex to be in the range of $325 million to $345 million.

Nine Q3, we bought back 109000 shares of stock at a total cost $10.5 million.

Year to date, we have purchased 500 485000 shares at a cost of $44 $2 million for an average cost of just over $91 a share.

We have approximately 110 million remaining under our existing buyback program.

Moving to slide 12 based on our third.

This is how this here's how our revised full year 2022, adjusted EBITDA guidance translates to segments.

And environmental services, we now expect adjusted EBITDA at the midpoint of our guidance to increase approximately 42%.

Full year 2021.

Demand for our disposal and recycling facilities has enabled us to drive more volumes of high value of waste streams all year and.

And we're benefiting from a full year of of the contributions from HBC.

Our pricing as strict cost controls have also made a significant positive impact on our profitable growth.

<unk> asked we anticipate full year 2022, adjusted EBITDA at the midpoint of our guidance to increase approximately 37% of 2021.

Guidance reflects our strong Q3, along with recent Basil pricing trends in the market and it.

Seasonal slowness that the industry typically sees in the fourth quarter.

And our corporate segment at the midpoint of our guide we now expect negative adjusted EBITDA to be up approximately 89% from 2021.

The year over year increase is largely due to the addition of HBC corporate cost for a full year as well as wage inflation.

Offset by lower 17 integration expenses compared with a year ago.

Along with higher cash interest payments due to rising rates. There are two primary operate operational factors that ultimately increased are working capital needs through the remainder of the year both timing related.

First a rapid revenue growth has been strong than even stronger than we expected.

Which was resulting in higher upfront expenses from a working capital perspective.

These expenses like payroll fuel and supplies were paid much faster than we can collect the cash from a revenue generated creating those timing, creating a timing item.

Gas will be collected over the next few months as those received receivables come in the door.

Second in light of ongoing global supply chain disruptions, we made a strategic decision to increase inventory of critical supplies at our facilities. We're.

We're managing our business for the long term it is imperative that we be there for our customers when called upon.

Combination of those two items.

It means that are working capital for 2022 is more than $50 million above what we anticipated when we spoke to you in August .

We fully expect are working capital need to return to normal in 2023, as we collect I received both in a timely fashion and use up that inventory.

Assuming any increase in bed that going forward in the current ageing about receivable buckets is all consistent with historical levels.

We still have to go through a year at budgeting process, including setting our capex expectations developed by 2023, adjusted free cash flow guidance range, and we will share in February .

However, I would anticipate that next year's free cash flow, even with as much as $90 million spend plan for a kimble incinerator will be well north of $300 million.

In summary, Q3 was another strong quarter for clean harbors.

Led by disposal network and management of our re refining spread combined with good contributions from our service businesses.

Hide your performance in the quarter was again terrific as we capitalize on robust demand will operationally addressing inflationary pressures to intelligent pricing and costs mitigation.

Near term growth prospects remain promising based.

Based on our staff expected strong Q4 and pipeline opportunities for 2023, we are maintaining a bullish outlook.

We need to run through our budget process in the coming months and are not providing any preliminary guidance for next year. Today, we do expect another year profitable growth for clean harbors in 2023.

Let me conclude by saying that personally I'm thrilled about the next chapter clean harbors and working closely with Eric as co CEO .

Her chiniofon great working relationship over my nine years with the company.

I am thankful to our board of directors and Allen for the opportunity and the belief they've shown in me and Eric.

While we recognize we have big shoes to fill I'm confident in our ability to continue Allen's legacy of success at the company.

Before we opened up the call for questions I know, Eric wanted to add a few comments as well Eric.

Thanks, Thanks, Mike and good morning, everyone.

I would first like to take the opportunity to publicly thank Alan for his tireless leadership for the past 42 years you.

And clean average today is unmatched in hazardous waste capabilities geographical coverage service offerings and the quality of our team thanks to Alan's efforts.

Ah personally excited and honored to lead the company and the co CEO rule.

Clean harbors has been my home for 32 years, the last 23 of which have been working directly for out.

For those of you that don't know my background. My path here is similar to Alan and then I started on the front lines as a field lab, Pat chemists and one of our branches of 1989 and rose through the organization at.

At different stages of my career I have been the general manager of several of our facilities and of overseeing both our disposal and our environmental business before being named Chief operating officer in 2015.

I've worked closely with Allen during the last two decades and know our industry well there.

There continues to be significant opportunity to profitably profitably grow this company for the benefit of our employees and our shareholders.

I know what makes US company Prosper and look forward to working with Mike to extend Allen's 40 year plus track record of success with that operator, please open the call for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad occur.

A confirmation total indicate your line isn't the question queue you.

You May press Star two if you would like to remove your question from the queue.

Participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment, please while we call for your questions.

Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your questions.

Hey, good morning days.

Point out.

Hey, congrats on everything, including the 50, Eric I know, there's all there's a lot of hand, wringing about a potential economic slowdown it sounds like your backlog, it's very strong maybe even at an all time high how do you think that even if things slow down a bit next year the eating some of that backlog could maybe help me that.

Yes in 2003.

Yes, Tyler as you've mentioned are deferred inventory backlog continues to be very strong or volumes, finishing the year are strong we do anticipate to work down a little of that backlog as we progress through the fourth quarter and into the first and.

And we do expect it to smooth out in 2023, but we do anticipate continued strong volumes throughout the whole network with strong incinerator utilization.

Yeah perfect. Okay. That's that's very helpful and I quickly.

Yeah.

This year.

Okay.

Tyler you're breaking up can you repeat the question. Please.

Alright.

Let me switch over hey, so sorry.

The guidance, though to be clear it does not include the <unk>.

$17 million divestiture on the cash flow side this year.

The divestiture of of Airborne in June .

Next time.

Cash flow guidance includes that cash flow guidance today includes that divestiture. It doesn't include the proceeds now.

And now I get it now.

Does not include any did not conclude any M&A nor any divestitures.

Okay, perfect and it just seemed like if we back into the queue for interest expense it's.

It's kind of call. It circle 35 million I mean, if we baseline that through into next year is R.

Our interest is going to be something like a $25 million headwind next year.

Yeah, I'd say, so I mean, you Gotta go take a guess at what interest rates are going to be but as we thought about kind of 2023 preliminary cash flows we do have it going up a bit.

Okay and then just.

It sounds like there's a lot moving all kind of moving pieces in free cash flow next year. So just wanted to see if I've got some of the the big pieces. So there's the potential for cash interest to step up there's probably a potential for cash taxes to step up with some of the depreciation step down.

It sounds like Capex will likely be up because of kemble, but then maybe working capital was going to be a good guy are those kind of some of the big conceptual pieces.

The other thing too Tyler's that we had at.

As part of that cares Act, we did differ a portion of payroll taxes back in 2020, and we have to repay we paid repaid a portion of that about 18 million in 2021, and we're gonna pay another 24 million here in 2022, and so then we'll be done.

So that in my mind, the big good Guy as you think about kind of 2023 I think in my mind that kind of offset some of the interest expense.

Yeah.

Okay perfect. Okay, I will turn it over thank you.

Thanks.

Thank you power next question is coming from the lineup Michael Hoffman with Stifel. Please proceed with your questions.

Thank you very much and al and it's been a lot of fun doing this for the for the last 35 of your 42 years, So where do you take the boat first to go fishing.

[laughter].

So there was a tuner of season opens up Michael I'm there [laughter].

Could we touch on it.

Continue with the thesis of twenty-three you've had one heck of a 22 and as the market's doing everybody beat 22, and they pivot medially to twenty-three.

One of the things you've done in 2002.

Which again in my 35 years I haven't seen upn's price like you've never ever in this industry.

How much of a price as part of organic growth.

As a permanent change in the business model going into twenty-three.

Yeah, Michael it's a good question because.

In 2022 with high inflation, and we did we were aggressive in pricing.

I see that even and I think we've learned that we have scarce assets and we can use them and we can price accordingly, because I think that there's certainly demand for our for our services given a strong safety and compliance and are strong team is good pricing opportunities I think as you think about 2023, I don't see that changing I see that.

As others have said I see that as as an opportunity. So let's say inflation comes back down I don't know why we kind of changed tack on this I feel like we have set the set scarce assets that have a huge amount of compliance associated with them a huge amount of regulation that it's important that we maintain them well and that all costs money and so I feel.

Like I feel like as I think about 2023 early days, we have to go through our budget process, which we're going through right now, but I feel really good about the pricing as we roll into 2023.

The other thing I would say just one last point is that.

<unk> look at $2000 three remains really robust and so that's gonna give us a good running start if you will into 2023.

Okay.

Just a loose and around that.

You've had an unbelievable price cause then place in let's say in place and asked to normalize at some point, we'll pick a number a call at 4% historically, 4% world.

You weren't pricing it for you relied on operating leverage survive and a little bit of price. So the way to think about is if we have in place and a four.

Price that four is not an unreasonable way to think about part of the organic growth.

Yeah, I would say that's the case I think that's I think again as we're putting a budget together I think that certainly in certain parts of our business, especially in.

Technical services and feeding into our landfills incinerators containerized waste and safety clean Michael you know these businesses.

They have we have the ability to continue to price and price aggressively alright cool.

Everybody's trying to figure out what happens that sks S. As the world re balances on supply demand.

Can you give us some sense of how to think about what the premium might be in the selling price for the imbalance in the supply demand and.

And how that correct.

But we're going to end up at a much higher low total profit of sks.

Because by amount of 2020.

And better overall spread management.

Oh that was a lot, but I think Michael like I'll I'll kick this off and then.

Like can that in.

Think.

Since we separated the business out in 21.

Coupled with I'm on.

I think.

We have I think done a really good job of managing that side of the business better than ever before and I think we're growing our volumes, we're seeing the market as long on the used motor oil side.

Those are those are all good signs we also know that.

With diesel and fuel oil being sort of a 40 year low inventory level that is going to be a lot of VGL moving over into that side of the the.

The refining process, if you would and so we were not anticipating any significant change here.

And quite frankly, I think are.

Premium that we're now starting to get for our base oil I think is a reflection of really people wanting to have a recycled product.

Many customers are now being required to have some percentage of their face or be refined and so the demand for that both here in the U S as well as in other parts of the World, where we're getting a lot of inquiries aren't so we really think that.

We still have a lot of runway in that business, even though there's been some global disruption with the the Ukraine or.

Okay. So just so I think I heard that correct, we used to have to take a discount on price now you're suggesting your right arm part of our premium so even if there is a supply premium.

Demand premium and base oil.

There's two probably offset or not work to the good.

Yeah, I would say that plus.

We didn't really sell a lot of blended product this year, because they were additive shortages and so forth.

The view of that if the world normalizes.

We think is going to happen there'll be more added and there'll be more of an opportunity to sell our blended oil which has a higher price point at a higher overall contribution all right.

Of course, everybody's wringing their hands that that's going to throw us into a recession, we've got what's going on in Europe . When I look back at the second half of 15 in all of 16, the last true industrial recession I'm not sure what we call the pandemic, but the true industrial recession.

Take out your upstream energy exposure.

Yeah, there's some are down 810% and EBITDA total was sort of what happened in that 18 months.

What's different about the model today that.

Would dampen some of that down and more importantly, it was only down 810 versus a cyclical markets were down 20 and 30.

I think the company is.

Went through a number of recessions in crude crashes during the 2014 and and other periods.

And I think the company has really been opportunistic to continue to grow during.

During those downturns in being positioned in a in a in a way where we could take advantage of of.

Maybe our competitors weakness out there I think we're in a great shape financially here with our balance sheet, where it's at.

Grow to any recession like we have in the past four or five that we've we've experiments there Michael.

Okay.

This is Eric Michael I'll add to that that.

Think today.

Pass city of hazardous waste disposal market tighter than at that time.

[noise].

Obviously by some captors coming offline.

Our utilization continues to be strong the utilization in the industry is strong so there's much less capacity overall in the market than there was in the past.

Staying closer to home rather than global seem more local and global and I think that's really helping our business here in North America.

In the paper AVC anywhere, but China.

Yeah.

One last for me is big competitor is about 10% of the market and incineration has been offline due to a vendor, causing a fire.

Any visibility when that capacity comes back on.

It's our understanding Michael that the capacity comes online in mid December and there'll be ramping up again into the first quarter.

Thank you very much.

Thank you.

Thank you. Our next question is coming from the line of Jerry <unk> with Goldman Sachs. Please proceed with your questions.

Yes, hi, good morning, everyone and Allen.

Congratulations.

Thanks, you too.

Mike Erika and I'm wondering if you just talk about how you envision that co CEO rolls.

Each of you be focusing on one of you take one of the business.

Can you just give us a call.

Text and I know, it's early but any potential strategic priorities that you would outline for us.

At this point, obviously to the core strategies the same but.

I'm sure each of you will bring your own flavor to the rule.

Yeah. So yeah, Jerry so the answer is the purpose of getting the announcement out today was so that we can have kind of opened in conversations with your organization is that how we go forward certainly we've talked with the board about directionally, but we have to work through that process and that's why we announced today. So we can add kind of good conversation with the team is that.

A day in my opinion it as co CEO has we're responsible for all of it and so I think that that is going to be the way, it's going to work and obviously, we are going to divide and conquer and we don't need to all be together and everything but I think that it's going to be it can be a great a great working relationship like a has been continuing to work with Alan ounce till the chairman the bodies still working as a technology officer. So.

Returning to lean on his knowledge and experience can as we go forward.

Okay.

Super and then given the really strong performance and.

Environmental services. This year can we just revisit the longterm.

Margin trajectory, how should we think about the level of margin expansion that you folks are targeting on an annual basis within the context of.

Really strong performance we've seen this year.

Yeah J. So one of your colleagues kind of in Q1 asked us we're going to get back to 2022.

Two 2021 margins in 2022 for Es and I'm here to report that based on our kind of R. Q4 numbers that we talked about this morning, we're going to be able to beat those numbers by quite a bit in the so I'm really proud of the team of rallying around you know kind of pricing and cost controls to kind of get to that answer so yes, it's going to.

Finish, let's say above.

We landed for the year in 2022, even with the slow start that we had in Q1 of 2022.

Yes for the year in the low twenties, I think I think it grows 30 50 basis points from there I really believe that our ability to to manage.

Our contracts.

Price intelligence make sure with the plans from unwell on safe and compliant I think those all those things continue and and you see it from our safety stats and from our results you see this morning.

Yeah, Jere and this is Erica would add to that I think we continue to be opportunistic to drive cost out of the business and we have.

Things and play right now that will take more effect into 2023 and will continue to drive price everything that consistent with our strategy over the past year, a particular that continues to be opportunity there.

Ah Subaru and lastly on safety clean and can you just talk about how you view the full cycle range of earnings power.

That business you spoke to a lot of the structural changes in your prepared remarks, and so I'm wondering if you could talk to.

So on your framework for what took us through cycle performance looks like.

Today, given all of the all of the items that you outlined earlier in the call.

Yes, Gary this is Mike I'll take a shot at it.

So we're going to end the year the midpoint of of the guidance. We gave this morning at 310 211 million and I think what you're asking is kind of how that goes kind of goes forward.

Again, I feel as Alan communicated with that kind of managing the spread really well increased regulations.

Clean plus.

Recycled oil argument that we've made I think has been getting a lot of traction both here in the U S and globally. So again I feel kind of really bullish about about 2023 and beyond for that for that SK business and if.

Super.

Thanks.

Thank you.

Thank you. Our next question comes from the line of David Massey with Bear. Please proceed with your questions.

Thank you good morning, everyone and Ellen.

<unk> like Eric Congratulations to all three of you.

Maybe I missed it.

Do you have any initial comments on the boards direction for succession, and the C O O and CFO role and it seems like the clock is ticking here in a relatively short timeline.

Any insights you can provide.

Yeah. So.

Again as I said earlier, the purpose of the announcements to get to talk about kind of Allen and the CEO role. We recognize the fact that we need to have the CFO and we're working down that path.

Have a few months in front of us, Dave I think that Ah.

Again, the purpose of today was more to talk about kind of where we are from a CEO standpoint did today and tomorrow I'm still to CFO and Eric's, there's still this yellow and we and we do have to work on that we have kind of good good plans to do that and we've already shared that with a boy. We just got the purpose of today is to have kind of more.

Open and honest conversation with a broader organization. So we can move forward.

And we just said this is Eric gave that.

Obviously succession planning has been in place for quite a while now and we've worked on that and continue to have a plan as we work forward going on to the first quarter here on those rules.

Okay. Thank you for that and then.

More operationally looking down your broad list and markets here, even if they are all growing and doing well. If you kind of had a single out top two versus bottom too you just give us an idea cause you have a pretty good window into the economy here just interested in.

Which are sort of the top of the stack rank, which are the bottom.

Probably a couple of us on a couple of things I would probably mentioned is that if it wasn't for the additives shortfall in our.

And our sks.

We would have had a much stronger year, they're so we've really been constrained both ourselves.

But also our customers that buy our base oil I've also been constrained because they haven't been able to get.

The editors they need it.

Take the second thing would be.

We're into the HBC acquisition for a year.

And I would say that it's.

It's really the early innings here in regard to a margin improvement pricing cost management.

I think that acquisition like.

The safety clean acquisition in 2012, I think is really in the early days and it's going to be a home run for US here. We're really excited about that when you. When you think about safety clean back 10 years ago at $150 million EBITDA and today, a $500 million EBIT kind of business.

I think.

It shows where we put the right systems and management placement processes, where we really can drive margin and those numbers those safety clean numbers would even be better. This year. If it wasn't for some of the headwinds we had on the additive front so.

I think those are really too.

Thanks to mentioned, Mike I'm not sure if you want to add.

Points here or not or Eric.

I think I would add Ellen that.

Instead of a tough too I think there's there's more of like a top 10 I think.

Certainly there has been many strong trends across various areas of the business this year.

Technical service branch business volumes and collections very strong field services, we've grown within utilities accounts on our branch collection business had mentioned earlier or Containerize waste volumes and collection are an all time high throughout the Ksf's business used motor oil collection is very strong.

Long.

Base oil saw sales as well very strong. So there's there's many top items I think totally aligned with what Alan said there on those two items that we continue to need to work on but.

Much opportunity there.

Terrific. Thank you all.

Thanks.

Thank you. Our next question is coming from the line of Jim maturity with Needham and company. Please proceed with your questions.

Alright. Thank you good morning, I'll add my congratulations on the transition maybe to that last point about.

The shortfall.

Short for all that you've experienced.

Is that.

I think like I think you alluded to some increase in inventory of critical supplies I Wonder if you could elaborate on that.

Opening remarks.

Sure Jim So two things have happened. So first of all we made a strategic decision to say with.

With problems of other plants in our network, we want to try to avoid any types of down days and the unplanned downtime in our incinerators we.

Looking at looking at the piers that you've I'm sure you're covered in there is there is a tremendous demand is Eric said earlier for network capacity and so we want to make sure that our plants don't suffer an unplanned outage for any extended period of time and so to do that we want to make sure that critical supplies. It's bears.

Are there and so we made that and given the long lead time for some of these supplies coming from Asia and Europe . We wanted to make sure that we had those in place at our site. So that if there was a problem we could get back online relatively quickly. So we made the strategic decision that to to add a little more inventory of critical spares kind of across the net.

Work for our facilities to try to prevent that so that's a bit of a bad guy from a cash flow perspective, I think that a boat well from a strategic standpoint as far as you think about the long term.

Importance of incinerators and our other facilities to have these critical stairs. So that was that was that that was that was the deal on that let's say the spare side.

On the other side that that's just the cost of oil being a little higher putting a little more in our tanks to try to make sure that we can service our customer through the winter months and be strategic about the pricing as we go forward. So we have added a little oil in our in our in in the inventory and I think that again are both well into 2023.

Got it thanks.

How old are you guys thinking about the piece as opportunity and 23 and and maybe it's more meaningful and 24 is that when you think it has the potential to be have a meaningful impact on the business and I'm wondering what kind of contribution yeah. My my dad I Dunno, a base case look like in this area of the Bill.

This.

So Jim this is Eric I'll answer that our strategy <unk>.

Continues to be around predominantly taking advantage of high temperature ruck growth permitted incineration at our units as we mentioned.

A quarter ago, we have undertaken.

Compliance testing and have proven well that.

Our incinerators have the technology to properly disport destroy <unk> contaminated material that being said, we also have other opportunities to manage those contaminated waste into our landfills as well as treatment systems that we can treat water on our customer sites and perform remedial.

Activities and we continue to build out our portfolio to take advantage of that.

We are seeing a continued growth in our pipeline hard to at this point really define what that contribution might be into 2024, but need needs to be said that.

Opportunities and how we work with our customers contaminated soils in particular and water treatment.

Pipeline continues to grow here for us.

And then.

Final question for me is I guess.

Anniversary the HBC acquisition, one last month and.

Appears to have gone well I'm wondering how has the the integration of that.

Perhaps impacted or is impacting the way you're thinking about near term opportunities intermediate opportunity to say in terms of.

Future M&A.

Yeah, Jim. So this is Mike I would say that our focus has been to integrate hydrocarbon.

Two points I think it's been a good success, but down points I think there is still much work much more work to do and there are probably in the early innings as you mentioned earlier.

I would say that our focus has been too.

Focus on that integration and I think I'm gonna end the year in really good shape from a cash in a balance sheet standpoint without leverage being under two times Levered I think there is plenty of opportunity probably in the smaller nature of tuck ins that are out there that we continue to look at is Allen said earlier too when if there is a recession coming in 2023.

Some of our some of these companies may not may not come out so good and theirs and we want to be optimistic that if there are opportunities outdated by kind of permanent facilities and other key assets that were there and so we are going to try to be as as nimble in our in our in our strategic priorities around cash flows and around the balance sheet to give a give ourselves that opportunity that if there were.

The problem, we can take advantage of it.

Thank you.

Thank you. Our next question comes from the line now Okay with Oppenheimer. Please proceed with your questions.

Thanks for taking my questions and congratulations Allen Erica and like heavy for all of you and I wanted to ask about this succession. There is a fair amount of business literature on what makes a co CEO organizational structure was successful right. I mean, you you need the right mix of personalities and shared values and <unk>.

Pulmonary skill sets backing of the board and then really.

Clear responsibilities and decision rights are being delineated and Eric.

[laughter] no. This is Eric so will as Mike said earlier will continue to work out the details of the internal organizational structure.

Throughout Q1 would be more prepared to talk about that after we get through Q1.

That being said.

As you mentioned, we do check many of the boxes to have a great co CEO relationship here <unk>.

Again will will be disclosing more of those details in the future, but needless to say you're right. We do check all the boxes here.

No I would add to that to say that.

We are going to have some form of Investor day in 2023, not sure exactly the exact day, but I think it's important to kind of to your point to kind of talk talk about kind of our strategy going forward. How we do enables responsibilities who's who on the team and I think that's going to be.

Good opportunity to do just that.

Okay, Great. We're looking forward to that and then when it come back to pricing, which a lot of folks have discussed alrighty on this call.

It seems like you know there are a lot of lepers for continued price momentum as we we go into 2023, maybe you could talk about some specific pricing actions that were taken in this quarter.

I I think in prior quarter as you've helped us unpack a little bit price versus volume contribution within parts of the Es business and then how to think about just taking the impact of of your pricing actions year to date and how much that rolls over into growth for next year.

Yes, I know this is Mike. So there are a fair amount of pricing actions we've taken.

That will have a I think we'll have a fair amount of good rollover the pricing initiatives that we put in place and that should both well certainly in through the first half of the year. My view is that we're going to continue to drive price into 2023.

For for new price increases and I think that's going to help us kind of.

US survive any type of down turn that we see in any and markets.

Okay. Thanks very much.

Thanks.

Thank you. Our next question comes from the lineup Lehrer solid with CJR Securities. Please proceed with your questions.

Enemy.

Yeah, Peter So this is Eric R.

The course of this year the industrial turnaround business has been very strong as plants delayed their turnarounds into 2022. So we had a very robust turnaround season more from the point of the turnarounds were extended more than usual because of the amount of work that needed to be performed.

That being said, we all know that.

The refinery market and chemical markets. They continue to run very very strong and we anticipate continued strong turnaround season, probably a little bit shorter turnarounds in what we experienced through Q2 on into Q3, but continued to be robust because they're running full tilt and making products and refining oils and so.

We're very bullish about the.

The turnaround season strength, continuing especially with the.

Combined HBC platform on industrial business.

Oh fantastic that wraps it up for me and congratulations to all of you on this succession plan.

Thanks Pete.

Thank you. Our next question is coming from the line of Jane creamy with da Davidson. Please proceed with your questions.

Hey, good morning, gentlemen, congrats on the strong results in again, Congrats Allen, Mike and Eric for each of your respective transitions.

Alright.

So a lot of questions been app, but one touch on SG&A, a little bit more per cent of Reds right. They reflected a fairly significant improvement, which I believe you alluded to be due to the effect of consolidation with H B C. But one other internal initiatives are you taking that helped with the improvement and what should we be expecting moving forward.

Yeah. This.

This is Mike.

The data is pretty is pretty good whether you look at corporate corporate cost or SG&A, both of those kind of ticked up moderately given our our large kind of revenue growth and there's a lot of things that are out there that that we've done that.

To manage our cost structure there.

Some of that as simple as far as third party spend and project, where we try to do a lot more things internally this year versus using third party resources to help us site consolidation.

Continues to be a priority to try to manage our sites and limit the amount of rent expense, we have to pay for our operating locations. We we've done a lot of that there's still more much more work to do we also have used kind of lower cost jurisdictions to help us offset some of the cost of labor and that's been a helper as we look out for the past year or two and most importantly.

And here in like gear three of that exercise. So all those things have really driven drill.

Driven kind of good good cost management on the SG&A in the corporate side I see that I see all this continuing into into 2023, I don't I don't see ourselves kind of slowing down we do manage headcount very well we have tried to hold the line on head count and remain a flat level head count as the business has grown that's been a big winter for us using.

As much as we can to kind of offset the incremental work and so I think that again I think all these things just continue on in 2023 and and also Zhang is part of our culture. You know, we try to run as lean as possible to manage our and to manage our non billable headcount very tightly that doesn't change as whoever CEO has that.

Part of our culture, and we will continue to do that.

Yep.

Thank you gentlemen.

Thanks, and the Q.

Thank you. Our final question is coming from the line of Scotland with Bloomberg. Please proceed with your questions.

Hey, good morning, everybody and congratulations all the way around on on the promotions.

And I guess my first my first question is with regard to while I, just Wanna push a little bit more on the.

And the oil recycling, obviously guys have been killing it the last couple of years spacewalk prices had been searching and now we're seeing and pull back a little bad I know the additive shortages an issue in terms of blending but how can we think about that business continuing to grow if indeed, we do see.

Continued pullback in base oil prices and are you confident data and.

An increase in the planning next hand.

Demand et cetera, well.

Enable you to grow that business or continue to grow it off of you know very strong levels last couple of years.

Yes, the sale and I'll start out here that certainly.

When when the additive shortage.

Normalizes, which probably will take place somewhere in this for a second quarter of next year.

Anticipate.

That'd be shifting more of our our sales back to where we were on the blended side because there was about a margin for us there in a in a strong demand we have a direct organization now to sell those materials and have a number of distribution locations that we've built to support that effort.

But clearly.

We had continued shortfalls as we mentioned with attitudes, but also with with hydrogen as well I mean, our refineries were on allocation even for hydrogen this year.

We are putting it added capex generate our own hydrogen and a number of our larger plans. So that we're not gonna get caught short again.

Because we have been on allocation even C O two pressurized to to run our Baltimore plant was in a forceful joy. So there's really been quite a bit of disruption. So.

When you think about 23 sort of getting back on track with our blended sales program.

As well as some of the things that we've been able to be successful at with a byproducts coming out of our plants are asphalt bottoms are a vacuum gas oil fuels all of those things that team has really done some great work and we think that momentum was gonna continue through next year. So a lot of good a lot of good head.

Lay there in the future I think.

Thanks Alan.

One last one really quickly.

Haven't heard as much that he guys over the last several years really on the on the energy oriented businesses and clearly with oil prices, where they are in with.

The growth potential we're seeing production an interest in that and.

U S shale fields captured you guys have any interest in may be grown the energy side of your business again or is that really not.

In the thought process here when you think about this.

He didn't want to get larger in or maybe businesses as you want to get into a newer or something along those lines.

Yeah.

Our interest certainly is on the waste disposal side of activities that have gone on in the in the shale area, but that's really to the extent of our focus we really trying to grow our environmental business. We're really looking at how do we leverage those disposable assets like our talks about.

Picking up additional TSV fs that would really help.

Get us some more.

Processing capabilities to feed our incinerators, particularly with kimble coming on.

And realizing that with the number of captives.

Considering shutting down.

Which is sort of an ongoing thing that we've seen over the last 10 or 15 years, we really want to position ourselves and that environmental space and that's really where our focus has been.

And then the oil and gas area, particularly up in Western Canada, We've got a strong presence in the oil sands, but it's all focused on industrial and that business has been doing very well for us this year.

Understood. Thanks.

Yep. Thanks.

Hey, Scott.

Thank you there are no further questions at this time right now like to turn the call back over to Mr. Mccain for any closing comments.

Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Q3 2022 Clean Harbors Inc Earnings Call

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