Q4 2022 Clean Harbors Inc Earnings Call

March 1, 2023

Greetings and welcome to the clean harbors fourth quarter 2022 conference calls at.

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It is now my pleasure to introduce your host Michael Mcdonald General Counsel for clean harbors. Thank you Sir you may begin.

Thank you Christine and good morning, everyone with me on today's call are chairman, President and Chief Executive Officer, Alan S. Mckim, EVP and Chief Financial Officer, Mike Battles, President and Chief Operating Officer, Eric Rustenburg, SVP, and Chief Accounting Officer, Eric Dugas, and SVP of Investor Relations Jim Buckley.

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

Matters, we are discussing today that are not historical facts are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today March 1st 2023.

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

Today's discussion includes references to non-GAAP measures clean harbors believes that such information provides an additional measurement and consistent historical comparison of its performance reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release on our website and in the appendix of today's presentation.

Let me turn the call over to our CEO Alan Mckim, Alan Thanks, Michael Good morning, everyone and thank you for joining us starting on slide three before discussing our year end results I want to reflect for a moment and the fact that this will be my final earnings call as CEO and I will be passing the torch to Eric and Mike at the end of this month.

As I mentioned on our Q3 call. It's been my privilege to lead this tremendous organization and I've enjoyed communicating and engaging with our shareholders over the years, maybe some quarters, a little bit more than others.

The company has been on a remarkable growth trajectory for the past five plus years and I am confident that youll see more of these exceptional results under Eric and Mike <unk> leadership, along with the rest of the executive team, but now includes Eric Dugas, as our Chief Financial Officer, and Brian Weeber as our president of our safety Kleen.

Sustainability solutions segment, which we announced in a separate news release this morning.

Eric Dugas is an outstanding Chief accounting officer, and has become a strong business partner to the operational teams.

It'll be a terrific CFO for us.

Brian is a 30 year employee who has held many key roles at the company. Most recently he has led our M&A efforts in managing many corporate functions, but he also oversaw about products and services business bps within S. K S. S b.

EPS includes a variety of services, such as our sale and distribution of blended products through our oil plus closed loop program.

Based on his background and broad expertise Bryan is the ideal choice to lead <unk> through its next stage of growth and build on the company's strong position as the most sustainable offering in the lubricants market.

Having said all of that about the team I'm still going to be here come April working on overall strategy, M&A and driving technology enhancements that support our future growth productivity and lowering cost.

Turning to our results I'll, let Mike take you through the details, but overall I'd say that we experienced the most of the same positive trends in Q4 that we saw all year, particularly in our environmental services segment that enabled us to conclude our record 2022 with continued strong performance.

The quarter also continued to demonstrate the considerable leverage in our business model is 14% top line growth drove a 29% increase in Q4 adjusted EBITDA.

Our most impressive result, however for both the quarter and the year was in our safety results, where we delivered the best year in our history.

As a management team, we work hard to try to make sure that all our colleagues return home to their families every day uninjured.

Our goal for 2022 was to achieve a total recordable incident rate below one.

This year the team achieved an amazing <unk> 73.

And I'm, so thankful to the entire organization for all their hard work achieving that rate and we're going to continue to challenge them in 'twenty three to be even better.

In addition to our fantastic safety results, we hit $1 billion of adjusted annual EBITDA for the first time in our history in 2022, while improving our return on invested capital for the fifth consecutive year.

Revenue for the year was up 36%.

And adjusted EBITDA increased 51%.

With a record margin of 19, 8%.

And we achieved some other notable accomplishments this past year, including combining <unk> with our legacy U S industrial services business <unk>.

Advancing the construction of our new incinerator in Nebraska.

Acquiring a H re refinery facility.

Launching our clean plus brand in our base oil market we.

<unk> our voluntary turnover.

While significantly increasing hiring of our billable head count and finally, releasing a groundbreaking P fast incineration study.

Turning to our environmental service segment on slide four the 15% growth in revenue was driven by a combination of volume and pricing. We continue to see considerable demand for our network of disposal and recycling assets.

In Q4, we benefited from manufacturing and chemical industry tailwind as reassuring regulatory enforcement and projects generated healthy volumes for our facilities.

Incineration utilization was 84% in the quarter, reflecting multi day unplanned outages at both Deer Park and El Dorado due to the extreme weather that we had during December .

Nevertheless, Nevertheless, the mix of higher value waste streams in Q4 resulted in a 21% increase in average incineration pricing.

Q4 landfill volumes rose by 28% as we continue to win multiple waste project opportunities are.

Our industrial service business performed well in Q4, as we continue to harmonize our U S operations now working under the HTC industrial brand.

Safety Kleen environmental revenue was up more than 20%.

As core offerings have now surpassed pre pandemic levels.

Services revenue grew 8% due to pricing and branch growth initiatives.

Looking at environmental service segment profitability.

Adjusted EBITDA growth again, outpaced our topline increasing by 35% we.

We worked hard to make sure that our pricing kept up with inflation.

But while also implementing a myriad of cost reduction and productivity initiatives.

We leveraged our SG&A costs, while substantially growing this segment collectively this fueled a 340 basis point increase in our environmental services margins from a year ago.

Moving to slide five.

<unk> ability in our <unk> segment cooled down after a record breaking Q3.

Revenue in this segment was up 9% in the quarter on higher pricing and revenues from the acquisition that we completed in June as well as some higher sales of recycled fuel oil because of the plant disruptions that took place in December .

Which was based on the extreme weather impacts that we had.

Our adjusted EBITDA and margins declined based on our revenue mix as we sold less volumes of base oil and lubricants. We made the strategic decision in the quarter to build up some base and blended inventory for seasonally stronger period in the first half of this year, when we expect demand and margins to be more.

<unk>.

Our Q4 profitability was affected by severe weather at multiple refineries that impacted production levels and also resulted in higher cost on the waste oil collection side. However volumes were strong again up slightly from a year ago.

Given market conditions, our sales of blended products in our direct volumes at 8% of total output was essentially in line with our expectations.

The additive shortages that plagued the lubricant industry through much of 'twenty two started to abate in Q4.

This improvement should be a tailwind for overall base oil demand in 23, while also enabling us to increase our blended volumes this year.

We also made investments in the direct lube oil sales force to drive growth with our oil plus program.

Turning to slide six and our capital allocation strategy on the M&A front, we are continuing to see a good flow of potential bolt on transactions for both our operating segments.

In late December we purchased a small waste oil collection business in West Texas.

And more recently, we signed a purchase and sale agreement to acquire Thompson industrial services in an all cash deal for approximately $100 million we.

We expect that deal to close at the end of this month.

This transaction, which will add approximately $120 million in annual revenue will expand our industrial service presence in the southeast.

Yes it.

It will broaden our capabilities and bring us into verticals, where we have sold the environmental services, but not industrial services verticals like paper mining and power.

With the acquisition of <unk>, we have built a scalable platform to add complementary industrial services companies like Thomson that is.

Synergistic and enhance our cross selling of environmental services.

Mike will take you through some of our recent debt activities, but the key takeaway is that we will continue to maintain a strong balance sheet that will enable us to remain opportunistic on the M&A front.

So with that let me turn things over to Erik <unk> Erik.

Thanks, Alan we are continuing to evaluate opportunities to drive organic growth through internal investments along those lines, our new state of the art incinerator in Kimball, Nebraska remains on plan and on budget.

While we could certainly put it to work today, we're excited to have that come to market with 70000 tons of much needed capacity in early 2025.

We entered 2023 with healthy momentum across all of our key environmental services businesses.

Our primary markets remain in great shape, given the underlying market dynamics and essential nature of our business.

Within the environmental services segment, our backlog of waste remains at record levels, particularly due to the December outages, which well positions us for 2023.

Given the diversity of our customer base, we expect healthy demand for our network of disposal and recycling assets to continue all year based on our customer interactions.

Our service businesses, all experienced solid growth in 2022 and with the expansion of our billable head count throughout the year, we should benefit from those new hires here in 2023.

We expect our base business to continue to grow due to the ongoing re shoring trend among manufacturers and investments in areas like semiconductors pharma and EV batteries. We also expect project opportunities to continue to be healthy this year as monies from the infrastructure Bill and other programs are released into the market as well as regs.

<unk> is providing more clarity around <unk>.

Based on the results of our comprehensive third party P. Fast study, where we released late last year, we believe our incinerators not only represent the most appropriate solution for <unk> compounds, but the only commercially scalable destruction solution already available in the market.

Within <unk>, we continue to carefully manage both ends of our re refining spread and collect the waste oil volumes needed to support our plans.

Despite base oil demand, taking a step down in Q4 from the heightened Q3 levels. Today, we are beginning to experience the normal seasonal pickup and we are when we are confident overall market conditions will remain favorable this year.

While 2022 presents a challenge is a difficult comp for us we see numerous opportunities to enhance our profitability in this segment, including raising production from 2022 levels, including a full year of contribution from our synergy plan, increasing sales of blended products and capitalizing on the increasing interest in our society.

<unk> products. Additionally.

Additionally, our clean plus base oil brand that we launched in mid 2022 is helping to facilitate discussions with customers seeking solutions that will lower the environmental impact of their automotive and industrial lubricant products with that let me turn it over to Mike battles.

Thank you Eric and good morning, everyone turning to our income statement on slide eight Q4 revenue increased 14% to $1 8 billion with nearly all of that coming from organic growth for the year. We grew 36% to nearly $5 2 billion with the majority coming from organic growth and a full year of contributions from <unk>.

<unk>, which we acquired in October of 2021.

Q4, adjusted EBITDA was 29% higher than a year ago coming in at $224 2 million, which equates to a margin of 17, 5% or 190 basis points increase from Q4 of last year.

We achieved this result through gross margin improvements fixed cost leverage and controlling SG&A spending.

For the year adjusted EBITDA declined 51% with margins up 200 basis points to 19, 8%.

If you look at 2022 results by segment, you'll see that all three of our reporting segments meaningfully contributed to the overall margin expansion. This is an outstanding accomplishment given the inflationary environment, we operate in all year long.

Q4, gross margins improved 120 to 110 basis points to 33% this.

This is the first quarter, where we had <unk> in both periods and our gross profit improvement reflects our ability to price to price to offset inflation increased margins through productivity improvements and deliver strong operational efficiency gains.

Q4, SG&A expense as a percentage of revenue improved 100 basis points to 13, 2%.

On our Q4 2021 earnings call a year ago, we shared the large opportunity to realize synergies as we integrate HBC.

Our results reflect those captured efficiencies on top of that we continue to leverage our global capability Center in India and diligently monitor all our costs.

For the full year SG&A costs as a percentage of revenue was 12, 1%.

Selecting a reduction of 200 basis points in line with our November guidance.

As we look ahead to 2023, we expect SG&A costs.

As a percentage of revenue to remain in this 12% range.

Depreciation and amortization in Q4 increased as expected to $87 million.

Largely reflecting acquisitions for the full year, depreciation and amortization rose $347 6 million.

Rose to $347 6 million debt above the range. We provided in November for 2023, we anticipate depreciation and amortization in the range of $345 million to $355 million.

Income from operations in Q4 increased 55% to $127 4 million driven by healthy revenue growth combined with our margin improvement and environmental services.

For the full year, our income from ops climbed to an impressive 82% to $634 7 million.

Net income in the quarter was $82 5 million up 68% from a year ago and for the full year, both net income and GAAP EPS more than doubled to 100, $411 7 million and $7 56 per share.

Turning to our balance sheet highlights on slide six cash and short term marketable securities at year end was $555 million up more than $40 million from September 30.

We ended the year with debt of just over $2 4 billion.

We took several prudent steps related to our debt in Q4 and subsequent to year end.

First during Q4, we strategically pay down our variable rate debt by $100 million in response to the rising interest rate environment second.

Second in January we refinanced the remaining $640 million of our term loan b loan due in 2024.

We achieved this by issuing $500 million of new eight year unsecured senior notes due 2031.

And by tapping our ABL revolver for $114 million.

Leveraging our lower rate revolver, not only decreases our interest expense, but also lowered the cost of refinancing and provides flexibility to more easily reduce our debt further going forward should we elect to do so.

Leverage on a net debt to EBITDA basis at year end was approximately one nine times after being north of three <unk> to start the year.

Our weighted average cost of debt today following the refinancing in January is approximately 5% with almost 80% of our debt at fixed rates.

Turning to cash flows on slide 10 cash from operations in Q4 was a robust $268 7 million <unk>.

Capex net of disposals was $96 8 million up from the prior year, primarily reflecting the ongoing construction of our Nebraska incinerator.

In Q4, we spent roughly $18 million of the Kimbo project, which brings our full year spend to $45 million for.

For 2022, we delivered adjusted free cash flow of $289 9 million at the top end of the range we provided in November .

But 2023, we expect our net capex to be in the range of $400 million to $420 million the.

The majority of the increase from the 336 million, we reported in 2022 relates to our investment in Kimball.

We expect to double to approximately $90 million in 2023, we're also continuing to invest in our transportation fleet and equipment to accommodate the growth of our business, eliminating third party rental spend whenever possible.

During Q4, we bought back just over 52000 shares of stock at a total cost of $6 million.

Year to date, we've repurchased 537000 shares at a total cost of $52 million for an average cost of $93 51 a share.

And we have approximately $105 million remaining under our existing buyback program.

Moving to slide 11 based on our 2022 results and current marketing conditions for both our operating segments. We expect 2023 adjusted EBITDA in the range of $1 1 billion to $1 <unk> 5 billion with a midpoint of $1 3 billion.

Looking at our guidance from a quarterly perspective, we expect Q1, adjusted EBITDA to be approximately 20% higher than Q1 of 2022.

Now I will provide the breakout of how our full year 2023, adjusted EBITDA guidance translates to our business segments.

In environmental services, we expect adjusted EBITDA at the midpoint of our guidance to increase 6% to 7% from full year 2022.

Demand for our disposal facilities continues to enable us to maintain our pricing strategies drive higher volumes and funnel more favorable mix into our network service demand remains healthy I should note that our guidance does not include the Thompson industrial transaction at this time.

For <unk>, we anticipate full year 2023, adjusted EBITDA at the mid point of our guidance to decrease by approximately 15% from 2022, reflecting recent base oil pricing trends.

Despite the slight decline in base oil pricing, we have a number of meaningful offsets that Eric outlined in his remarks.

In our corporate segment at the midpoint of our guidance, we now expect negative adjusted EBITDA to be up low single digits from 2020 to the.

The year over year change is due to wage inflation and rising insurance expense, partially offset by cost saving initiatives and lower and lower bonus compensation compared with 2022, where we had record results across the board.

Based on our 2022 free cash flow results rising interest rates and latest working capital assumptions. We expect 2023 adjusted free cash flow in the range of $305 million to $345 million or $325 million at the midpoint.

Want to remind everyone that this range includes the $90 million, we are spending on the new incinerator. This year, if you add that back the midpoint of our guidance range would be about $415 million.

In summary, Q4 was a great finish to a record year as Alan highlighted we against a lots of the same favorable trends in the quarter that we experienced throughout the year.

This is a substantial there is substantial demand in our network with a very healthy backlog.

Volume within volumes and their network of facilities are further supported by encouraging levels of interest across our service businesses based on our demand level. We are seeing as we kick off the year. We are projecting to continue the positive growth trajectory in 2023% led by our environmental services segment, where we maintain a bullish outlook we expect another <unk>.

Wrong year for clean harbors in 2023.

Not only are we bullish about our prospects for 2023, but we believe our long term outlook is positive and plan to share our perspective.

On that at our Investor Day, which will take place on March 29th in Chicago with the larger executive team.

That will conclude with a tour of our re refinery jets across the border in Indiana.

I encourage any institutional investors or analysts interested in attending to reach out to Jim.

With that Christine. Please please open up the call for questions.

Thank you we will now be conducting a question and answer session.

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A moment please while we poll for question.

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

Hey, good morning.

So Alan I was sitting here counting on my fingers and toes I think you've done 140 earnings calls and I believe I've been on all of them.

Wish you the best of luck.

Michael some of those were good calls and some were not as good right.

It's always interesting, but I'll say this out loud because I think people are acknowledged that you always could see where the puck was going and I always respect with added value.

Yeah.

So Mike battles price.

And I think about the lines of business at environmental are.

Are we getting priced in.

All three pieces to the technical services side industrial field services and S. T E.

And when you think about that.

How much of its rollover from last year versus rollover plus.

Discovered price is a component of growth.

Yes, Michael.

I think that it is certainly as we look at Q1, a lot of it's rollover of price we did in the back half of the year because as you remember Q1, we didn't we started to put price increases in place in Q4, and Q1, but most of them one in place until the back half of Q1, So I think that that that year on year kind of price increases.

Will certainly impact Q1, but make no mistake I think that there's also we also continued down the path of looking at ways to increase price in all.

Three or four of the let's say the environmental services businesses, whether it be tech service on disposal field services industrial and the SK branch business I think there's plenty of good opportunities there.

Talk about kind of learning how to do it more effectively I think that's true I think that pricing will be part of our story has been part of our story for many years and will continue I think that that.

I think that Theres, certainly opportunities there to continue to drive price well beyond the rollover that we see here in Q1.

And then a point of clarification around industrial and field services.

Think about what you look like today versus what it looked like in 2016.

Am I right in that you basically have consolidated the other three major national players and so the discipline that comes into the market about price should.

It should be better whatever the economic environment looks like.

Sure. Yes. This is Alan Michael I think.

There was.

Some benefits of bringing some major players together and leveraging the technology and leveraging the relationships that we all have with our with our key customers and I think one of the things we've been able to do is work with a lot of our accounts.

No.

Survive better safety programs better technology hands free technology bring more R&D now into the into the business working with them to develop ways of performing the kind of services on these massive plants to help them get back online faster and safer and at a lower cost and I think so.

Our customers really have benefited I think from that consolidation that's taken place.

Yes, Michael and this is Eric I'll add to that I think that with our platform that we have today. We're obviously an unparalleled national provider of field services and industrial services. We have as you know many national accounts with locations throughout North America that we are able to support with the broad network that we have today.

Okay that helps and then.

Free cash flow Mike.

You had a very strong corporate overhead number which I'm assuming is above average incentive comp for a great year well deserved.

That pays out in the spring of 'twenty three that's a headwind I'm assuming into the free cash flow assumption is that about $10 million.

But the right way to think I think its a lesson I think I think it's a little less than that.

We had a great year in 2021 as well so the rollover impact is 5% to 10, Michael I'd say, okay, but theres some things like that working capital was a pretty healthy use in 'twenty. Two does it is it assume neutral or do you assume it's a source and twenty-three when I think about the free cash.

Yes, when you look at free cash flow for 2022, certainly working capital receivables.

The other areas, where it was quite a use.

We're assuming in the guide that we kind of hold the line on on working capital I think that's going to be a positive obviously, if we get better at it and we're putting a lot of programs in place to get better at managing receivables getting paid faster if that gets better.

When to free cash flow, but we're assuming that it gets worse I think part of the challenge in 2022 was a very large acquisition and the integration around that and so that was a bit of a.

A headwind in 2022 from a free cash flow perspective, as it relates to working capital. Okay. And then just to be clear that the corporate overhead guide is off the $2 37, 3% to 5% growth off of $2 37 not.

Normalized.

Yes, yes, yes.

The actual number and we assume there's going to be some.

Thing when you think of the corporate costs I think we assume that there is wage inflation and things like that there are other cost saving initiatives that we're putting in place those arent in the guide and we are hopeful will do better than that.

Okay. Thank you very much.

Okay Michael.

Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.

Thanks for taking the questions and congratulations to all Erik congratulations on the on the on the appointment.

I guess, you Don Kimble, the $90 million spend increase for 'twenty that was always in plan.

And so I just want to confirm a that you're reiterating the budget there, but then I guess we've seen.

Broadly.

Across a number of industry. Some some delays in terms of large project timing and some capex inflation and so with you reiterating the timeline and the budget can you just talk through for US what drives your confidence and ability to bring the plant online timely and a line of sight to major equipment deliveries labor ability and so forth.

Yes, no. This is Eric I'll respond to that so yes, so reconfirming the $90 million estimate spend for 2023.

The way we look at this project, we we obviously have a wealth of experience from how we built out our El Dorado addition, train two and from that we've applied it to the much of the same principles to how we're thinking about building our Kimball how we've been building out Kimball so the components, how we're managing it the same management team from.

Construction general contractor that we're using albeit internally, we're managing that very closely we meet monthly and go through the project. We do have some longer lead time items, but those continue to be on track as we went through 2022 went into 2023. So we're still confident in meeting our startup date in our startup.

Timing for that 70000 tons.

Okay, great. Thanks, and then I just want to make sure I'm clear on how youre thinking about the S. K S. S business here in <unk> and kind of the cadence of the year.

The comp is still favorable here in <unk>, obviously, it gets tougher as we go later in the year, but it sounds like basically you have accumulated some inventory there were some impacts from weather, but you can take advantage of the seasonal uptick to sell that through I guess.

How long would you expect to take to work that off.

Is that is that a quarter or two.

And then how you think about the sort of the cadence of performance for the segment over the year.

Yeah.

Yes. So when you think about kind of I think that that inventory get worked off in the first half.

March April may is kind of a very busy.

Season for the sales of our base and blended products I think that when you think about the cadence Q1 will be flattish maybe up a little bit from from last year Q2, and Q3, given the record year quarters, we had in the SaaS business, they're probably going to be down in Q4 will be up given some of the weather challenges we had in Q4 of 2000.

'twenty two so I think the <unk> and easier V. If you will in Q4 of 2023, but so I think of the cadence of the year and then Q1 is flattish Q2 Q3 down Q4 up.

Really helpful. Thank you.

All right.

Our next question comes from the line of Quinn Fredrickson with Baird. Please proceed with your question.

Hey, good morning, guys. Thanks for taking my question and thank you, Eric and Brian Yeah, Congrats to Erik and Brian and best of luck town.

Thank you.

So Mike I just wanted to start out with you made some comments in the past about the es business kind of starting with industrial production as a base for growth.

Can you give us a sense for just what kind of IP environment, you might be assuming for the 2023 guidance.

Yeah, So I think that you know.

We've had a couple of great years of Es organic growth in 2022, it was 20% organic growth in 2021, it was 8% organic growth.

Industrial production is scheduled to be.

Low to mid single digits.

I think that I think we can do better than that but we can't be we can't assume that we're just going to continue to kind of go at the level that we have been at given the large growth that we've had in 2021 and 2022. So I'd say that's mid single as I think about it.

Revenue growth in 2023.

Okay. Thank you that's helpful and then.

Secondly, just building on your comments on FCA excess spread.

Can you just give us a little more color on your ability to manage the spread in your confidence in managing the spread in 'twenty three and just looking for what maybe structurally changed for the better or whether it's your ability to manage collection costs IMO 2020 in market consolidation or any other factors.

Sure so going back in time, a little bit we separated out our bulk products and services business and that was predominantly around the collection of used motor oil used loop and selling back our direct blended products into the market.

Is the organization that we talked about earlier, when we announced the change with Brian Weaver by separate out that organization. We also put in a significant amount of discipline around managing how we collect used motor oil the prices in the market that we that we charge or pay for that oil and then through the re refinery <unk>.

That's how we sell that direct blended oil so there's a significant amount of discipline with that organizational structure change that we've put in place. That's obviously reflective in our numbers from 21% in 2022, and we continue to have that in place today and will be well.

We're very confident that our spread management processes today are better than ever very robust, we know who we're competing against we know the customers that we're managing and we're very confident of our continuous to be able to manage that spread.

Okay. Thank you very much guys.

Thanks Glenn.

Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Hi, This is Adam <unk> on for Gary today. Thanks for taking my question you recently announced the results of the third party study demonstrating safe destruction of P. P. Fast that your incinerators are you able to update us on how youre thinking about the <unk> opportunity in terms of funds or volumes.

Incineration is designated as safe disposal method.

Do you need to build additional capacity beyond that Kimball, Nebraska plant to capture that incremental volume.

Yeah. So.

As mentioned, we continue to believe that high temperature thermal destruction is the best.

Best disposal technology for managing particularly contaminated soils.

Do not feel that we have to build any additional capacity across our network. Our plants are very robust and Kimball will obviously provide a an additional complementary tonnage to managing P. Fast contaminated soils I think it's too early to tell right now what and put a number on the tonnage that we would expect out of this.

Regulations are still being changed.

And we continue to be heavily involved in that process. We continue to communicate to all regulatory agencies on what our what our test has on deals and and we will.

Working with customers on different opportunities that they have to remediate their sites, depending on how the regulatory environment plays out.

Great and then can you help us think about.

Your assumptions for base oil prices, that's contemplated in the guide.

Yeah, Adam So we assume that base oil pricing moderates over the course of the year, we assume that at all.

Base oil pricing, where Q1 is kind of low Q2s up Q3s up Q4 is down and we assume that base oil pricing on average for the year will be down a bit on a year over year.

And the guys great. Thanks, so much.

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Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question.

Hi, good morning, and again, congratulations to all on the career development, particularly the U.

A question I had just with respect to Thomson industrial I was wondering if you could.

Talk a little bit about that any additional color you could provide including overlap with HBC.

Yes, Jim this is Mike and I'll start.

Eric around please feel free to jump in we're really excited about Thomson industrial it brings it brings.

<unk> cleaning to a part of the country, where we don't have a very large industrial presence like Allen mentioned, the southeast is not an area, where we have a huge huge business so bringing that type of so there isn't a lot of overlap today.

With hydrogen, but a small amount, but not a lot and so we're excited about our ability to sell environmental services businesses into that into those new customers and provide perhaps some cross sell around that.

As Alan said, it was about $100 million purchase price.

And that will close probably at the end of this month.

Got it.

It also provides us just one other thing Jim. This is Eric can also provides us an entrance to other markets that we haven't traditionally been in and particularly that southeast.

Market pulp and paper.

Well as the utility sector.

Got it thanks for that.

And just with respect to the comments that you made about.

Industrial production I mean, typically I guess do tend to lag some of that.

But I'm wondering if you've seen any early changes in customer demand.

With respect to a slowing economy I mean, it sounds like you actually have a pretty good pipeline, but I'm just wondering if.

If you have seen any subtle changes in the market.

Jim.

Pulled the sales team yesterday and the answer is no the pipeline remains as robust and strong as it was back in the fall.

Got it thank you.

Just last question if I may.

You mentioned pricing and.

How.

This also relates to customer behavior.

Yes, we go through this inflationary period does that you've kind of any more challenging too.

To put some of these increases across or is there just a better understanding and appreciation of the overall environment that allows you to continue to use price as a lever when when appropriate.

Jim Ive never had a conversation with the customer that they say kind of okey-doke to price increases is always a discussion with.

So the cost of thoughtful discussion on value.

Helpful discussion on customer service and timeliness and so all of that goes into the mix I would say that we've been very successful and as you can see from the 2022 results in particular Q4 of driving those price increases I think that continues into 2023, but it's never it's never an easy conversation. The fact that there is still a fair amount of inflation.

Has made that conversation easier it gives us more evidence and support but it's never an easy conversation around pricing.

Bobby mentioned, just one other thing I mean with the capacity constraints that we've had both in assets like resources for equipment personnel.

There are some customers that we've had to walk away from when we've had those hard conversations and realized that we need to put our people and our equipment to work, where we can kind of create the best value that's right and we're not going to.

Given some of the services away and so I think that has some discipline, particularly on the industrial side that we have begun to put in place that I think will start paying off for us in the future years here.

That's fair.

Got it thank you for that and congratulations on the year.

Thanks, Tim.

A final reminder, if you would like to ask a question press star one on your telephone keypad.

Our next question is a follow up from Michael Hoffman with Stifel. Please proceed with your question.

Thank you for taking this.

The one that probably shouldn't get asked is Palestine is there going to be a benefit from that after the fact and I know you didn't participate in.

The willingness of burning the chemicals, but.

Is there a benefit after the fact.

Michael.

We participated in.

One of the emergency response, and we've provided some solutions to the regulatory authorities.

<unk>.

Norfolk Southern on options. However, we before we really manage or take any of that material, we're being very transparent with the government agencies.

And the governments that we have our disposal facilities and at this point. We don't we are not have not started to take any volumes there.

And then Ed.

Everybody thinks it's going to be this amazing opportunity.

At camp kind of.

Think about it like Pcbs, where in the eighties and early nineties.

But there things have to happen before it becomes that can we talk about those a little bit and share with the market.

What does the EPA has to do and when do you expect them to do what they have to do this rulemaking and then the second part of the question is am I correct that all of your incineration capacity the way the permits work, bringing this volume and incremental it doesn't need a permit modification and you can still do all of the hazardous waste stuff that's permanent but this can be.

Incremental without having the modified permit.

Michael This is Michael.

I'll answer that.

Youre right that it does take increased regulation.

The definition of kind of how clean is clean it's hard for our customers, who may have P fast and their soil or somewhere on their sites to address the issue because there's not a clear definition of <unk>.

One of my done what is clean and so we think like.

This will take.

This will take some time to get that regulation is in place and I think that <unk> will play out over decades, and I think I think like Pcbs. It will be a winner for clean harbors and for the industry for a very long time.

To the point to your second question is can we take the <unk>.

The soil if you will in our current in our current incinerators.

From permit presented the answer is yes, it's sometimes it's just an add on because it because it's so a nerd and so I do think that is a clear opportunity for us and we've seen it in some in some public environments.

And Air Force bases and other areas military bases, where we've done some of this work and we will continue to do this work and I do think like you I think it is.

A very long term tailwind for clean harbors and for the industry.

Okay. Thanks for taking the questions.

Thank you Michael.

We have no further questions at this time, Mr. Mckim, I'd like to turn the floor back over to you for closing comments.

Thanks for joining us today, Mike, Eric Dugas, and Jim will be participating at the Raymond James Conference next week and as Mike mentioned, we will be hosting our investor day in four weeks.

I look forward to seeing some of you there in person later this month.

For being here today.

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

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

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

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

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Michael Mcdonald General Counsel for clean harbors. Thank you Sir you may begin.

Thank you Christine and good morning, everyone with me on today's call are chairman, President and Chief Executive Officer, Alan S. Mckim, EVP and Chief Financial Officer, Mike Battles, President and Chief Operating Officer, Eric Rosenberg, SVP, and Chief Accounting Officer, Eric <unk>, and SVP of Investor Relations Jim Buckley.

Slides for today's call are posted on our Investor Relations website, and we invite you default long <unk>.

Matters, we are discussing today that are not historical facts are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today March one 2023.

Let me turn the call over to our CEO Alan Mckim, Alan Thanks, Michael Good morning, everyone and thank you for joining us starting on slide three before discussing year.

Year end results I want to reflect for a moment and the fact that this will be my final earnings call as CEO and I will be passing the torch to Eric and Mike at the end of this month.

The company has been on a remarkable growth trajectory for the past five plus years and I am confident that youll see more of these exceptional results under Eric and Mike <unk> leadership, along with the rest of the executive team that now includes Eric Dugas, as our Chief Financial Officer, and Brian <unk> as our president of our safety Kleen.

Staying ability solutions segment, which we announced in a separate news release this morning.

Eric Dugas is an outstanding Chief accounting officer, and has become a strong business partner to the operational teams.

It'll be a terrific CFO for us.

Brian is a 30 year employee who has held many key roles at the company. Most recently he has led our M&A efforts and managing many corporate functions, but he also oversaw a bulk products and services business bps within SK FSS.

Bps includes a variety of services, such as our sale and distribution of blended products through our oil plus closed loop program.

That enabled us to conclude our record 2022 with continued strong performance.

<unk> also continued to demonstrate the considerable leverage in our business model is 14% top line growth drove a 29% increase in Q4 adjusted EBITDA.

Our most impressive result, however for both the quarter and the year was in our safety results, where we delivered the best year in our history.

As a management team, we work hard to try to make sure that all our colleagues return home to their families every day uninjured.

Our goal for 2022 was to achieve a total recordable incident rate below one.

This year the team achieved an amazing <unk> 73 and.

And I am so thankful to the entire organization for all their hard work achieving that rate and we're going to continue to challenge them in 'twenty three to be even better.

Revenue for the year was up 36% and.

And adjusted EBITDA increased 51%.

With a record margin of 19, 8%.

And we achieved some other notable accomplishments this past year, including combining <unk> with our legacy U S industrial services business <unk>.

Advancing the construction of our new incinerator in Nebraska.

Acquiring <unk> refinery facility.

Launching our clean plus brand in our base oil market.

<unk> our voluntary turnover.

While significantly increasing hiring of our billable head count.

And finally, releasing a groundbreaking P fast incineration study.

In Q4, we benefited from manufacturing chemical industry tailwind as reassuring regulatory enforcement and projects generated healthy volumes for our facilities.

Incineration utilization was 84% in the quarter, reflecting multi day unplanned outages at both Deer Park and El Dorado due to the extreme weather that we had during December .

Nevertheless, Nevertheless, the mix of higher value waste streams in Q4 resulted in a 21% increase in average incineration pricing.

Q4 landfill volumes rose by 28% as we continue to win multiple waste project opportunities.

Our industrial service business performed well in Q4, as we continue to harmonize our U S operations now working under the HBC industrial brand.

Safety Kleen environmental revenue was up more than 20%.

As core offerings have now surpassed pre pandemic levels.

Services revenue grew 8% due to pricing and branch growth initiatives.

Looking at environmental service segment profitability.

Adjusted EBITDA growth again, outpaced our topline increasing by 35%.

We worked hard to make sure that our pricing kept up with inflation.

But while also implementing a myriad of cost reduction and productivity initiatives.

We leveraged our SG&A costs, while substantially growing this segment collectively this fueled a 340 basis point increase in our environmental services margins from a year ago.

Moving to slide five profitability in our <unk> segment cooled down after a record breaking Q3.

Which was based on the extreme weather impacts that we had.

<unk>.

Given market conditions, our sales of blended products in our direct volumes at 8% of total output was essentially in line with our expectations.

The additive shortages that plagued the lubricant industry through much of 'twenty two started to abate in Q4.

This improvement should be a tailwind for overall base oil demand in 23, while also enabling us to increase our blended volumes this year.

We also made investments in the direct lube oil sales force to drive growth with our oil plus program.

Turning to slide six and our capital allocation strategy on the M&A front, we are continuing to see a good flow of potential bolt on transactions for both our operating segments.

In late December we purchased a small waste oil collection business in West Texas.

And more recently, we signed a purchase and sale agreement to acquire Thompson industrial services in an all cash deal for approximately $100 million we.

We expect that deal to close at the end of this month.

This transaction, which will add approximately $120 million in annual revenue will expand our industrial service presence in the southeast.

Yes it.

It will broaden our capabilities and bring us into verticals, where we have sold the environmental services, but not industrial services verticals like paper mining and power.

With the acquisition of HBC, we have built a scalable platform to add complementary industrial services companies like Thompson.

Synergistic and enhance our cross selling of environmental services.

So with that let me turn things over to Erik <unk> Erik.

Thanks, Alan we are continuing to evaluate opportunities to drive organic growth through internal investments.

Along those lines, our new state of the art incinerator in Kimball, Nebraska remains on plan and on budget.

While we could certainly put it to work today, we're excited to have that come to market with 70000 tons of much needed capacity in early 2025.

We entered 2023 with healthy momentum across all of our key environmental services businesses.

Our primary markets remain in great shape, given the underlying market dynamics and essential nature of our business.

Within the environmental services segment, our backlog of waste remains at record levels, particularly due to the December outages, which well positions us for 2023.

Given the diversity of our customer base, we expect healthy demand for our network of disposal and recycling assets to continue all year based on our customer interactions.

Our service businesses, all experienced solid growth in 2022 and with the expansion of our billable head count throughout the year, we should benefit from those new hires here in 2023.

<unk> is providing more clarity around <unk>.

Within <unk>, we continue to carefully manage both ends of our re refining spread and collect the waste oil volumes needed to support our plans.

Increasing sales of blended products and capitalizing on the increasing interest in our sustainable products.

<unk>, which we acquired in October of 2021.

Q4, adjusted EBITDA was 29% higher than a year ago coming in at $224 2 million, which equates to a margin of 17, 5% or 190 basis points increase from Q4 of last year.

We achieved this result through gross margin improvements fixed cost leverage and controlling SG&A spending.

For the year adjusted EBITDA declined 51% with margins up 200 basis points to 19, 8%.

If you look at our 2022 results by segment you will see that all three of our reporting segments meaningfully contributed to the overall margin expansion. This is an outstanding accomplishment given the inflationary environment, we operate in all year long.

Q4, gross margins improved 100, 110 basis points to 33% this.

Q4, SG&A expense as a percentage of revenue improved 100 basis points to 13, 2%.

On our Q4 2021 earnings call a year ago, we shared the large opportunity to realize synergies as we integrate HBC.

Our results reflect those captured efficiencies on top of that we continue to leverage our global capability Center in India and diligently monitor all our costs.

For the full year SG&A costs as a percentage of revenue was 12, 1%.

Selecting a reduction of 200 basis points in line with our November guidance.

As we look ahead to 2023, we expect SG&A costs as dependent as a percentage of revenue to remain in this 12% range.

Depreciation and amortization in Q4 increased as expected to $87 million.

Largely reflecting acquisitions for the full year, depreciation and amortization rose $347 6 million.

Rose to $347 6 million debt above the range. We provided in November for 2023, we anticipate depreciation and amortization in the range of $345 million to $355 million.

Income from operations in Q4 increased 55% to $127 4 million driven by healthy revenue growth combined with our margin improvement and environmental services.

For the full year, our income from ops climbed to an impressive 82% to $634 7 million.

Net income in the quarter was $82 5 million up 68% from a year ago and for the full year, both net income and GAAP EPS more than doubled to 100, $411 7 million and $7 56 per share.

Turning to our balance sheet highlights on slide six cash and short term marketable securities at year end was $555 million up more than $40 million from September 30.

We ended the year with debt of just over $2 4 billion.

We took several prudent steps related to our debt in Q4 and subsequent to year end.

First during Q4, we strategically pay down our variable rate debt by $100 million in response to the rising interest rate environment second.

Second in January we refinanced the remaining $640 million of our term loan b loan due in 2024.

We achieved this by issuing $500 million of new eight year unsecured senior notes due 2031.

And by tapping our ABL revolver for $114 million.

Leverage on a net debt to EBITDA basis at year end was approximately one nine times after being north of three <unk> to start the year.

Our weighted average cost of debt today following the refinancing in January is approximately 5% with almost 80% of our debt at fixed rates.

Turning to cash flows on slide 10.

Cash from operations in Q4 was a robust $268 7 million.

Capex net of disposals was $96 8 million up from the prior year, primarily reflecting the ongoing construction of our Nebraska incinerator.

In Q4, we spent roughly $18 million of the Kimball project, which brings our full year spend to $45 million for.

For 2022, we delivered adjusted free cash flow of $289 9 million at the top end of the range we provided in November .

For 2023, we expect our net capex to be in the range of $400 million to $420 million.

The majority of the increase from the 336 million we reported in 2022 relates to our investment in Kimball, we expected double to approximately $90 million in 2023.

We're also continuing to invest in our transportation fleet and equipment to accommodate the growth of our business, eliminating third party rental spend whenever possible.

During Q4, we bought back just over 52000 shares of stock at a total cost of $6 million.

Year to date, we've repurchased 537000 shares at a total cost of $52 million for an average cost of $93 51 a share.

And we have approximately $105 million remaining under our existing buyback program.

Moving to slide 11 based on our 2022 results and current market conditions for both our operating segments. We expect 2023 adjusted EBITDA in the range of $1 1 billion to $1 <unk> 5 billion with a midpoint of $1 3 billion.

Looking at our guidance from a quarterly perspective, we expect Q1, adjusted EBITDA to be approximately 20% higher than Q1 of 2022.

Now I'll provide the breakout of how our full year 2023, adjusted EBITDA guidance translates to our business segments.

In environmental services, we expect adjusted EBITDA at the midpoint of our guidance to increase 6% to 7% from full year 2022 <unk>.

For SK assess we anticipate full year 2023, adjusted EBITDA at the midpoint of our guidance to decrease by approximately 15% from 2022, reflecting recent base oil pricing trends.

Despite the slight decline in base oil pricing, we have a number of meaningful offsets that Eric outlined in his remarks.

In our corporate segment at the midpoint of our guidance, we now expect negative adjusted EBITDA to be up low single digits from 2020 to the.

Want to remind everyone that this range includes the $90 million, we're spending on the new incinerator this year.

Add that back the midpoint of our guidance range would be about $415 million.

In summary, Q4 was a great finish to a record year as Alan highlighted we against a lots of the same favorable trends in the quarter that we experienced throughout the year.

This is a substantial there is substantial demand in our network with a very healthy backlog.

Volume when volumes and their network of facilities are further supported by encouraging levels of interest across our service businesses based on our demand level. We are seeing as we kicked off the year. We are projecting to continue the positive growth trajectory in 2023 led by our environmental services segment, while we maintain a bullish outlook we expect another <unk>.

Wrong year for clean harbors in 2023.

Not only are we bullish about our prospects for 2023, but we believe our long term outlook is positive and plan to share our perspective on that at our Investor day, which will take place on March 29th in Chicago with the larger executive team.

That will conclude with a tour of our re refinery jets across the border in Indiana.

I encourage any institutional investors or analysts interested in attending to reach out to Jim.

With that Christine. Please please open up the call for questions.

Thank you we will now be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

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

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.

One moment, please while we poll for questions.

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

Good morning.

Alan I was sitting here counting on my fingers and toes I think you've done 140 earnings calls and I believe I've been on all of them and I wish you the best of luck.

Thank you Michael some of those were good calls and some were not as good right.

Okay.

It's always interesting, but I will say this out loud because I think people are acknowledged that you always could see where the puck was going and I always respect with added value.

Yes.

So Mike battles price.

And I think about the lines of business at environmental are.

Are we getting priced in.

All three pieces of the technical services side industrial field services and SK.

And when you think about that.

How much of its rollover from last year versus rollover plus.

Discovered price is a component of growth.

Yes, Michael.

I think that it is certainly as we look at Q1, a lot of it's rollover of price we did in the back half of the year because as you remember Q1, we didn't we started to put price increases in place in Q4, and Q1, but most of them already in place until the back half of Q1, So I think that the that year on year kind of price increases.

Suddenly impact Q1, but make no mistake I think that there's also we also continued down the path of looking at ways to increase price in all.

Talk about kind of learning how to do it more effectively I think that's true I think that pricing will be part of our story has been part of our story for many years and we will continue I think that that.

I think that Theres, certainly opportunities there to continue to drive price well beyond the rollover that we see here in Q1.

No no no.

A point of clarification around industrial and field services.

Think about what you look like today versus what it looked like in 2016.

Am I right in that.

<unk> consolidated the other three major national players and so the discipline that comes into the market about price should.

It should be better whatever the economic environment looks like.

Sure. Yes. This is Alan Michael I think.

There was.

At least some benefits of bringing some major players together and leveraging the technology and leveraging the relationships that we all have with our with our key customers and I think one of the things we've been able to do is work with a lot of our accounts.

No.

Provide better safety programs better technology hands free technology bring more R&D now into the into the business working with them to develop ways of performing the kind of services on these massive plants to help them get back online faster and safer and at a lower cost and I think.

The customers really have benefited I think from that consolidation that's taken place.

Yes, Michael this is Eric I'll add to that I think that with our platform that we have today. We're obviously an unparalleled national provider of field services and industrial services. We have as you know many national accounts with locations throughout North America that we are able to support with the broad network that we have today.

Okay that helps and then the.

Free cash flow Mike.

You had a very strong corporate overhead number which I'm assuming is above average incentive comp for a great year well deserved.

That pays out in the spring of 'twenty three that's a headwind I'm assuming into the free cash flow assumption is that about $10 million.

That's the right way to think I think its a lesson I think I think the little less than that.

We had a great year in 2021 as well so the rollover impact.

Is 5% to 10, Michael I'd say, okay, but theres some things like that working capital was a pretty healthy use in 'twenty. Two does it does it assume neutral or do you assume it's a source and twenty-three when I think about the free cash.

Yes, when you look at free cash flow for 2022, certainly working capital receivables inventory other areas, where it was quite a use.

We're assuming in the guide that we kind of hold the line on on working capital and I think that's going to be a positive obviously, if we get better at it and we're putting a lot of programs in place to get better at managing receivables getting paid faster if that gets better thats, a big win to free cash flow, but we're assuming that it gets no worse I think part of the challenge in 2022 was a very large acquisition and.

The integration around that and so that was a bit of.

Normalized like yes, yes, yes.

Took the actual number and we assume there's going to be some.

When you think of the corporate costs I think we assume that there is wage inflation and things like that there are other cost saving initiatives that we're putting in place those arent in the guide and we're hopeful we'll do better than that.

Okay. Thank you very much.

Okay Michael.

Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.

Thanks for taking the questions and congratulations to all Erik congratulations on the on the on the appointment.

I guess, you Don Kimble, the $90 million spend increase for 'twenty that was always in plan.

And so I just want to confirm that you're reiterating the budget there, but then I guess we've seen.

Broadly.

Across a number of industry. Some some delays in terms of large project timing and some capex inflation and so would you reiterating the timeline and the budget can you just talk through for US what drives your confidence and ability to bring the plant online timely a line of sight to major equipment deliveries labor ability and so forth.

Yes. This is Eric I'll respond to that so yes, so reconfirming the $90 million estimate spend for 2023.

The way we look at this project, we we obviously have a wealth of experience from how we built out our El Dorado addition train two.

And from that we've applied it to the much of the same principles to how we're thinking about building our Kimball health, we've been building out Kimball so the components, how we're managing it the same management team from our construction general contractor that we're using albeit internally, we're managing that very closely we meet monthly and go through the.

<unk>, we do have some longer lead time items, but those continue to be on track as we went through 2022 went into 2023. So we're still confident in meeting our startup date in our start up timing for that 70000 tons.

Okay, great. Thanks, and then I just want to make sure I'm clear on how youre thinking about the SK <unk> business here in <unk> and kind of the cadence of the year.

The comp is still favorable here in <unk>, obviously, it gets tougher as we go later in the year, but it sounds like basically you've accumulated some inventory there were some impacts from weather, but you can take advantage of the seasonal uptick to sell that through I guess.

How long would you expect to take to work that off.

Is that is that a quarter or two.

And then how you think about the.

Sort of the cadence of performance for the segment over the year.

Yes. So when you think about kind of I think that that inventory get worked off in the first half of March April may is kind of a very busy.

Season for the sales of our base and blended products.

I think that when you think about the cadence Q1 will be flattish maybe up a little bit from from last year Q2, and Q3, given the record year quarters, we had in the SaaS business, they're probably going to be down in Q4 will be up given some of the weather challenges. We had in Q4 of 2022, So I think the veolia and easier V. If you will in Q4 of 2020.

But so I think of the cadence of the year and in Q1 is flattish Q2, Q3 down Q4 up.

Really helpful. Thank you.

Idaho.

Our next question comes from the line of Quinn Fredrickson with Baird. Please proceed with your question.

Hey, good morning, guys. Thanks for taking my question and thank you, Eric and Brian Congrats to Erik and Brian and best of luck town.

Thank you.

So Mike I, just wanted to start out with.

You made some comments in the past about the EES business kind of starting with industrial production as a base for growth.

Can you give us a sense for just what kind of IP environment, you might be assuming for the 2023 guidance.

Yes, Quinn so.

I think that you know.

We've had a couple of great years of Es organic growth in 2022, it was 20% organic growth in 2021, it was 8% organic growth.

Industrial production is scheduled to be.

Low to mid single digits.

Yes revenue growth in 2023.

Okay. Thank you.

That's helpful and then.

Secondly, Eric just building on your comments on <unk> spread.

Can you just give us a little more color on your ability to manage the spread in your confidence in managing the spread in 'twenty three and just looking for what maybe structurally changed for the better whether it's on your ability to manage collection costs, IMO 2020 market consolidation or any other factors.

Okay. Thank you very much guys.

Thanks Glenn.

Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Hi, This is Adam you based on for Jerry today. Thanks for taking my question you recently announced the results of the third party study demonstrating safe destruction of P. P. Fast at your Incinerators are you able to update us on how youre thinking about the <unk> opportunity in terms of tonnes or volumes.

Incineration is designated a safe disposal method do you need to build additional capacity beyond that Kimball, Nebraska plant to capture that incremental volume.

Yes, so we.

As mentioned, we continue to believe that.

High temperature thermal destruction is the based best disposal technology for managing particularly contaminated soils we.

We do not feel that we have to build any additional capacity across our network. Our plants are very robust and Kimball will obviously provide a an additional complementary tonnage to managing <unk> contaminated soils I think it's too early to tell right now what <unk> put a number on the tonnage that we would expect out of this.

Regulations are still being changed and we continue to be heavily involved in that process. We continue to communicate to all regulatory agencies on what our what our test has on deals and.

And we will.

Working with customers on different opportunities that they have to remediate their sites, depending on how the regulatory environment plays out.

Great and then can you help us think about.

Your assumptions for base oil prices, that's contemplated in the guide.

Yeah, Adam So we assume that base oil pricing moderates over the course of the year, we assume that it.

Our base oil pricing, where Q1 is kind of low Q2s up Q3s up Q4 is down and we assume that base oil pricing on average for the year will be down a bit year over year.

And the guys great. Thanks, so much.

As a reminder, if you would like to ask a question press star one on your telephone keypad.

Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question.

Hi, good morning, and again congratulations to all.

The career development, particularly the U.

A question I had just with respect to Thomson industrial I was wondering if you could talk a little bit about that any additional color you could provide including overlap with HBC.

Yes, Jim This is Mike I'll start and Eric.

Eric around please feel free to jump in we're really excited about Thomson industrial it brings it brings industrial.

Industrial cleaning to a part of the country, where we don't have a very large industrial presence like Allen mentioned, the southeast is not an area, where we have a huge huge business. So bringing that type of so there isn't a lot of overlap today with hydrogen a small amount, but not a lot and so we're excited about our ability to sell and buy.

Mineral services businesses into that into those new customers and provide perhaps some cross sell around that.

As Alan said, it was about $100 million purchase price.

And that will close probably at the end of this month.

Got it.

It also provides us just one other thing Jim. This is Eric can also provides us an entrance to other markets that we haven't traditionally been in and particularly that southeast market pulp and paper.

As well as the utility sector.

Got it thanks for that.

And just with respect to the comments that you made about.

Industrial production I mean, typically I guess you do tend.

To lag some of that.

But I'm wondering if you see any early changes in customer demand.

Man.

With respect to a slowing economy I mean, it sounds like you actually have a pretty good pipeline, but I'm just wondering.

If you have seen any subtle changes in the market.

Jim that we pulled the sales team yesterday and the answer is no.

Our pipeline remains as robust and strong as it was back in the fall.

Got it thank you.

Just last question if I may.

You mentioned pricing and.

Yeah.

How.

So also relates to customer behavior.

Yes, we go through this inflationary period does that you've kind of any more challenging too.

To put some of these increases across or is there just a better understanding and appreciation of the overall environment that allows you to continue to use price as a lever when.

When appropriate.

Jim Ive never had a conversation with the customer that they say kind of okey-doke to price increases is always a discussion with.

The build up of our cost of thoughtful discussion on value is a thoughtful discussion on customer service and timeliness and so all of that goes into the mix I would say that we've been very successful.

As you can see from the 2022 results in particular Q4 of driving those price increases I think that continues into 2023, but.

<unk> is never an easy conversation. The fact that there is still a fair amount of inflation has made that conversation easier. It gives us more evidence and support but it's never an easy conversation around pricing.

You mentioned just one other thing I mean with the capacity constraints that we've had both in assets like resources for equipment personnel.

There are some customers that we've had to walk away from when we've had those hard conversations.

Is that we need to put our people and our equipment to work, where we can kind of create the best value that's right and we're not going to.

It gives them a services away and so I think that has some discipline, particularly on the industrial side that we have begun to put in place that I think we will start paying off for us in the future years here.

That's fair.

Got it thank you for that and congratulations on the year.

Thanks, Jim.

A final reminder, if you would like to ask a question press star one on your telephone keypad.

Our next question is a follow up from Michael Hoffman with Stifel. Please proceed with your question.

Thank you for taking this.

The one that probably shouldn't get asked is Palestine is there going to be a benefit from that after the fact I know you didn't participate in.

The willingness of burning the chemicals, but is.

Is there a benefit after the fact.

Michael We've we've participated in.

One of the emergency response, and we've provided some solutions to the regulatory authorities.

And Norfolk Southern on options. However, we before we really manage or take any of that material, we're being very transparent with the government agencies.

And the governments that we have our disposal facilities.

At this point, we don't were not have not started to take any volumes there.

And then everybody thinks P fastest gonna be this amazing opportunity in.

In that camp.

Think about it like Pcbs, where in the eighties and early nineties, but.

There things have to happen before it becomes that can we talk about those a little bit and share with the market you.

What does it have to do and when do you expect them to do what they have to do this as rulemaking and then the second part of the question is am I correct that all of your incineration capacity the way the permits work.

This volume is incremental it doesn't need a permit modification and you can still do all of the hazardous waste stuff thats permanent but this can be incremental without having to modify permit.

Michael This is Michael I'll answer that.

You are right that it does take increased regulation.

The definition of kind of how clean is clean it's hard for our customers, who may have <unk> in their soil or somewhere on their sites to address the issue because there's not a clear definition of.

One of my done.

What is clean and so we think like.

This will take that this will take some time to get that regulations in place and I think that <unk> will play out over decades, and I think I think like Pcbs. It will be a winner for clean harbors and for the industry for a very long time.

To the point to your second question is can we take the.

The soil if you will in our current and our current incinerators.

From permit presented the answer is yes.

And sometimes it's just an add on because it because it's so a nerd and so I do think that is a clear opportunity for us.

And we've seen it in some in some public environments in an air force bases and other areas military bases, where we've done some of this work and we will continue to do this work and I do think like you I think it is.

Very long term tailwind for clean harbors and for the industry.

Okay. Thanks for taking the questions.

Thank you Michael.

We have no further questions at this time, Mr. Mckim, I would like to turn the floor back over to you for closing comments.

Okay. Thanks for joining us today, Mike, Eric Dugas, and Jim will be participating at the Raymond James Conference next week and as Mike mentioned, we will be hosting our investor day in four weeks.

I look forward to seeing some of you there in person later this month, thanks for being here today.

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

Q4 2022 Clean Harbors Inc Earnings Call

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