Clean Harbors, Inc. (CLH) on Q1 2023 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen, and welcome to Clean Harbors First Quarter 2023 Earnings Call. All lines have been placed in the listen-only mode and the floor will be open for the questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host, Michael McDonald, General Counsel for Clean Harbors. Sir, the floor is all yours. Michael McDonald: Thank you, Karen, and good morning, everyone. With me on today's call are our Co-Chief Executive Officers, Eric Gerstenberg and Mike Battles; and our EVP and Chief Financial 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, May 3, 2023. And 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 Eric Gerstenberg to start, Eric? Eric Gerstenberg: Thanks, Michael. Good morning, everyone, and thank you for joining us. Our first quarter results demonstrates the execution of our growth strategy and the resilience of our diversified business model. We delivered broad-based growth across our Environmental Services segment. In addition to the favorable market conditions, those results were driven by cross-selling and capitalizing on our platform, of over 700 service branches, all sharing our unique assets in our 22,000 employees. Before we dive into the numbers, let me first highlight our outstanding safety performance. The team got us off to a terrific start in 2023, delivering a first quarter best TRIR of 0.61, which is well below our ambitious goal of 0.70. The first quarter can always be a challenge from a safety perspective, given the frequency of icy surfaces, which increase the potential for slips, trips and falls. So hats off to the team on keeping yourself and your colleagues safe. Keep up the great work. Turning to our Q1 financial results on Slide 3. We had a solid start to the year, led by our Environmental Services segment, which again generated strong profitable growth. Overall, we achieved a 12% top line increase to $1.31 billion. That helped drive our adjusted EBITDA by 19%, which was in line with our guidance for the quarter. Eric Dugas will talk a bit more about our margins, but those rose from a year ago as we continue to offset inflation through price and cost initiatives while maximizing the utilization of our people and equipment. Our results this quarter continue to demonstrate the considerable leverage inherent in our business model as we grow. We continue to see great momentum in the Environmental Services segment. Despite some weather-related challenges in the network, demand remains strong, supported by the growth drivers we detailed at our Investor Day in March. Within SKSS, we experienced a difficult macro environment as the base oil market has gotten off to a slow start. That business experienced lower profitability, which Mike will talk more about in a moment due to a decline in base oil pricing to start the year, resulting in short-term margin compression. Meanwhile, our Corporate segment was down year-over-year as the cost management efforts and better health care costs more than offset inflation. We are proud of our efforts to bring this number down even with revenues up 12% from a year ago. Turning to our Environmental Services segment on Slide 4. The 13% growth in revenue was driven by a combination of volume and pricing with growth in each of the four business units within Environmental Services. We continue to see considerable demand across the board for our services. Industrial Services revenue grew 9% as we continue to see the benefits of the HPC acquisition in late 2021 and move forward under a unified brand throughout the U.S. Revenues in Safety-Kleen Environmental grew an impressive 18%, led by its core offerings such as parts wash services, which increased to $250,000 in the quarter, up 7% from a year ago. At the same time, our Field Services revenue was up 12% on the strength of pricing, cross-selling and branch growth initiatives. Technical Services revenue was up 13% despite an increased level of unplanned outages at some of our disposal facilities primarily caused from weather-related challenges. As a result, utilization at our incinerators in the quarter was lower than we expected, coming in at 80% this quarter versus 85% a year ago. We expect that utilization to move back into the mid-80s here in Q2 after a couple of tough quarters. In fact, as we sit here today, all of our incinerators are running well. Average incineration pricing was up 15% year-over-year in Q1, demonstrating the success of our strategy to focus on higher value waste streams and remain price competitive while offsetting rising costs. Landfill volume was up 8% from a year ago due to severe flooding at our site in Buttonwillow, California. Excluding that site, landfill volumes are up year-over-year. Landfill price per ton was 17% higher in the quarter, reflecting strength in the base business, along with a healthy mix of waste projects. Looking at segment profitability, adjusted EBITDA growth again outpaced our top line, increasing by 24% and illustrating the leverage of our business model as demand for our services continue to be strong. We are also benefiting from a number of productivity programs and cost reduction efforts in recent quarters. As a result of these factors, we achieved a 190 basis point increase in ES margins from a year ago. Mike Battles will now take you through SKSS and our capital allocation strategy. Mike? Mike Battles: Thanks, Eric, and good morning, everyone. Let me begin by acknowledging the great work of our team in delivering for our customers. As Eric noted, the demand environment ES is robust. Our people are playing an integral role in helping to drive that demand because of their valuable skill set and through the use of technology tools and resources that enable our customers to increase their efficiency and productivity. Moving to Slide 5. Our SKSS segment had a challenging first quarter, falling short of our profitability expectations. The segment experienced a slower seasonal pickup in pricing in March than we had anticipated. As we move into Q2, the pricing environment for base oil has remained weak as noted by the recent price decreases across the sector in early April. On the top line, SKSS revenue grew 7% due to higher base oil volumes and revenue from the small acquisition we completed last June as well as higher sales of ancillary services. SKSS adjusted EBITDA decreased by 20%, resulting in lower margins. The variance was driven by weaker-than-normal seasonal pricing, which compressed our near-term re-refining spread. Buyers have been slow to come off the sidelines to start the annual driving season. Consequently, we faced a difficult comparison with the first half of last year when we saw five price increases in the first six months, leading to the significant margin expansion experienced in the first half of 2022. Our primary focus recently has been on the collection cost for UMO, which we manage in response to market pricing. Waste oil collections in the quarter were strong at 59 million gallons, up 11% from a year ago. We began rapidly lowering our pay for oil pricing over the course of the quarter in response to the market, a decision we expect to help us in the coming months. Blended product sales accounted for 15% of total output from our plants. Our direct volumes, which are -- which we are implementing our closed-loop approach, we're at 7% or nearly half of all blended volumes. Despite a slow start in Q1, our goal remains to increase our blended volumes this year. We expect both, our direct and wholesale blended, sales to improve as we move deeper into 2023 given the investments we have made. Turning to Slide 6 and our capital allocation strategy. On the M&A front, we continue to see a good flow of potential transactions, particularly bolt-on deals for both operating segments. As Eric mentioned, we completed the Thompson Industrial acquisition on the last day of Q1 in an all-cash deal for approximately $110 million. This transaction expands our presence in the Southeast U.S. for Industrial services. It also broadens our position in verticals where we have sold Environmental Services but not Industrial Services, including paper, mining and power. We're off to a great start and are impressed with the Thompson team. Whether Industrial Services or other Service Businesses, we will continue to target companies that are synergistic and afford us opportunities to cross-sell. Eric Dugas will touch on our balance sheet in his remarks. But from a debt perspective, the key takeaway is that we're maintaining a flexible, strong balance sheet that will enable us to remain opportunistic with M&A. We continue to evaluate internal investment opportunity to drive organic growth. We've talked on previous calls about our new state-of-the-art incinerator in Kimball, Nebraska. That 70,000 tons of annual capacity remains on plan, on budget and on schedule to open for business in early 2025. Given market conditions, we certainly wish it were sooner. Overall, we are pleased with how well we have started 2023 despite challenges on the base oil side and with some of our facilities. Within ES, we exited the quarter on a strong trajectory. Each of our businesses are in great shape as we move into our seasonally stronger quarters. While questions about the macroeconomic environment remain, we have yet to see any slowdowns in our ES segment. Underlying market conditions remain favorable, which also speaks to the essential nature of what we provide to our customers. Our record backlog of waste positions us well for the rest of the year. Our Q1 performance also reflects the diverse nature of our business model. Within SKSS, we expect the market to stabilize with the approach of the summer driving season. That said, short-term pricing pressures is a challenge. Therefore, our focus is on continuing to control what we can control. That means controlling costs across this business. Specifically, we are aggressively managing our waste oil collection costs, while ensuring we have enough supply to feed our re-refineries. Our bulk Products and Services, or PPS organization, which we established three years ago, allowed us to more nimbly adjust our collection costs. Based on current market conditions, as we sit here today, we are currently at a net charge for oil position with our collections. Clearly, the current pricing environment is more challenging than we anticipated when we gave our initial 2023 guidance. This is why we are lowering our 2023 expectations for this segment, which Eric Dugas will share shortly. We believe our ES segment will be able to offset the slowdown in SKSS. We are going to continue to drive SKSS profitability to minimize the spread compression through several areas. These include greater base oil production compared with a year ago as much as 10 million gallons or more, accelerating blended sales and cultivating interest in our environmentally friendly solutions through our new KLEEN+ base oil brand. We remain committed to the long-term growth of this segment as part of Vision 2027 plan, we introduced at Investor Day. With that, let me turn over to our CFO, Eric Dugas. Eric Dugas: Thank you, Mike, and good morning, everyone. Turning to our income statement on Slide 8. Q1 represented our eighth consecutive quarter of double-digit organic revenue growth, with March generating the single largest monthly revenue total in the Company's history. Revenue for the quarter increased 12% to $1.31 billion, with the vast majority of that nearly $140 million increase, fueled by strong organic growth in our Environmental Services segment. Adjusted EBITDA was $215.1 million, a 19% increase over the same period a year ago and in line with the consolidated guidance we provided in early March. These results equate to a margin of 16.5%, a 110 basis point increase from Q1 of last year, reflecting gross margin improvements, fixed cost leverage and lower SG&A as a percentage of revenue. Gross margin improved 80 basis points to 28.7%. This improvement reflects our ability to offset inflation with appropriate price increases while also increasing productivity and realizing gains from operational efficiencies. SG&A expense as a percentage of revenue improved to 12.8% in Q1. That improvement reflects our strong commitment to holding the line on costs and leveraging our growth to drive value for our stakeholders. For full year 2023, we continue to expect SG&A costs as a percentage of revenue to remain in the low 12% range, essentially flat to 2022. Depreciation and amortization in Q1 increased slightly to $84.8 million, consistent with our expectations. For 2023, we currently anticipate depreciation and amortization in the range of $350 million to $360 million, a slight increase from our prior guidance due to the addition of Thompson Industrial. Income from operations in Q1 increased nearly 40% to $121 million, driven by our strong revenue growth combined with continued margin improvement in the Environmental Services segment. Net income for the quarter was $72.4 million, up 60% from a year ago, resulting in GAAP EPS of $1.33 per share. Turning to our balance sheet highlights on Slide 9. Cash and short-term marketable securities at quarter end were $376.1 million, down from year-end, reflecting the Thompson transaction and the fact that Q1 typically is a large cash use period due to the payout of year-end bonuses as well as the timing of interest and tax payments. We ended the quarter with debt of just over $2.4 billion. As we discussed on our last earnings call in January, we refinanced the then remaining $614 million of our Term Loan B that was due in 2024. We achieved this by issuing $500 million of new eight-year unsecured senior notes due in 2031 and by tapping our ABL Revolver for $114 million. We continue to feel comfortable with our overall debt portfolio as there are no significant amounts coming due for a number of years. And with about 80% of our total debt being fixed at reasonable rates, we have lessened our exposure to the current higher rate environment. Leverage on a net debt-to-EBITDA basis as of March 31 was approximately 2x. And our weighted average cost of debt today remains at approximately 5%. Turning to cash flows on Slide 10. Cash provided from operations in Q1 was $28 million versus a use of cash of $39 million a year ago. CapEx net of disposals was $80 million in the quarter, up slightly from prior year and primarily reflecting higher year-over-year spend on our ongoing Nebraska incinerator project, where spend was roughly $13 million this quarter. In Q1, adjusted free cash flow was a negative $51.8 million, which was slightly better than our internal expectations and represented a substantial year-over-year improvement. For 2023, we continue to expect our net CapEx to be in the range of $400 million to $420 million. Our Kimball investment this year is still expected to total approximately $90 million of CapEx as the spending ramps up in the summer timeframe. We are also continuing to invest in our transportation fleet and equipment to accommodate the growth of the business and minimize third-party rental spend. During Q1, we bought back more than 22,000 shares of stock at a total cost of $3 million. We have just over $100 million remaining under our existing authorized buyback program which remains an integral part of our capital allocation strategy. Moving to Slide 11. Based on our Q1 results, current market conditions for both our operating segments and the addition of Thompson Industrial, we now expect 2023 adjusted EBITDA in the range of $1.02 billion to $1.06 billion. Looking at our guidance from a quarterly perspective, we expect Q2 adjusted EBITDA to be approximately 7% to 9% lower than Q2 of 2022 due to a challenging year-over-year comp for our SKSS segment. I'll now provide a breakdown of how our revised full year 2023 adjusted EBITDA guidance translates to our reporting segments. In Environmental Services, we now expect adjusted EBITDA at the midpoint of our guidance to increase 12% to 13% from full year 2022. Demand for our services and disposal facilities continues to be very strong, which should translate into a favorable mix and average price. The ES segment now includes approximately $12 million in adjusted EBITDA that is attributable to the Thompson acquisition. For SKSS, we now anticipate full year 2023 adjusted EBITDA at the midpoint of our guidance to decrease in the high 20% range from 2022, reflecting current base oil pricing and demand trends. In our Corporate Segment, at the midpoint of our guide, we expect negative adjusted EBITDA to be up mid-single digits for the full year 2023. This increase reflects wage inflation and rising insurance expenses, partly offset by cost savings and lower overall bonus compensation. The Corporate Segment guide now includes approximately $3 million of negative adjusted EBITDA attributable to Thompson. We continue to expect 2023 adjusted free cash flow in the range of $305 million to $345 million. While we had a better-than-expected Q1, I want to remind everyone that our guidance includes approximately $90 million of spend for the new incinerator in 2023. If you added that spend back, the midpoint of our adjusted free cash flow guidance range would be about $415 million. In summary, Q1 marked a promising start to the year for our Environmental Services segment. As Eric Gerstenberg highlighted, demand for disposal remains very strong, which has created a robust backlog of waste across the industry. Healthy facility volumes are being further supported by continuing high utilization of our people and equipment across many of our service businesses. With the exception of our base oil business, the favorable market dynamics and underlying trends that led to a record 2022 and that we outlined at our recent Investor Day remain intact. Our growth prospects in our Environmental Services segment this year are as strong as ever. We will manage our way through the slowdown in SKSS as we have done in previous cycles with the initiatives that Mike mentioned earlier. Overall, we expect another solid year for Clean Harbors here in 2023. And with that, Karen, could you please open the call up for questions? Operator: And we'll take our first question from Michael Hoffman from Stifel. Michael Hoffman: Nice quarter. Deferred revenue, strongest as far as I can tell, the strongest ever. Is it -- how much of that is just pure demand versus the utilization issue in the quarter? Eric Gerstenberg: Yes, Michael, this is Eric Gerstenberg responding. So the increase in deferred is really predominantly due to the low utilization on the incinerators. Michael Hoffman: And so it would have still been up versus 4Q because of the underlying demand environment or more likely flat? Eric Gerstenberg: More likely flat. Michael Hoffman: All right. So if you had hit your utilization, then ex Thompson, you would have been raising your numbers as well, given the level of profitability on $7 million of revenue. Eric Gerstenberg: That's right, Michael. That's right. Michael Hoffman: But that's part of my point is a guidance is going to be reaffirmed ex Thomson, and you're going to raise it anyway. Sorry, Mike? Mike Battles: That's right. That's right, Michael. This is Mike Battles. So you got it right. It really was -- we would have been better. Some plant disruptions caused us to have a lower utilization, which resulted in a little lower ES. But prior to what we said 60 days ago, it was actually much higher even with those problems. Michael Hoffman: Right. And then at the beginning of the year, one of the things you shared with us is trying to help the market appreciate the base oil in '22 is above average because of the global imbalance on supply-demand and that we knew we were coming back into balance and your guidance is expected to reflect that. So you'd sort of -- without being absolutely precise at guide towards sort of a $250 million is sort of a baseline. And then anything you did better around lending and more capacity utilization would have been upside. Do you still feel that the underlying baseline still lives somewhere in that mid-250 and that we're in a short-term imbalance around seasonality? Mike Battles: Yes, Michael, I firmly believe that. I think that the challenge you have is that we assumed pricing would come up with the summer driving season, and it just didn't materialize. As a matter of fact, it went down. And so that in my mind -- and we -- as I said in the call, we adjusted our collection costs, our UMO pricing aggressively, but there's a lag there. And so that lag is kind of ripping its way through the financial statements and you see it here in Q1. And in an effort to be thoughtful and make sure we don't have any further problems, we lowered it quite a bit from where we were, let's say, 60 days ago. Michael Hoffman: Okay. But -- but another way to say this is the upside of 2019 from IMO 2020, you still feel very strongly was something in the low $100 million that puts you in that approaching $250 million ex whatever the global supply and demand did to base oil in '22? Mike Battles: Yes, sir. I mean our Vision 2027 we shared a month ago, would come back up to 300 by the end of the five years, and it's not a straight line. So we're going to continue to work through that. And the team has done a good job this quarter as prices started to decline kind of drop, kind of UMO pricing from, let's say, the low $0.20 charge for oil position, which I said on the call. Michael Hoffman: And you're in that sort of low single digit on the charge for oil now? Mike Battles: I think we are very, very low single digit. Eric Gerstenberg: Yes, Michael, I think it reiterates the strength of our BPS organization and how effective they have been to be able to respond quickly to market conditions to drive down our UMO collection costs. Michael Hoffman: Okay. And then last one for me. Industrial production as an has been tracking down. And all of you who have reported so far across the Industrial Services markets and showed really good activity, are there any end market pieces that were a little weaker, but others were stronger? And that's one of the strengths of Clean Harbors today as you have this broader, more balanced portfolio. But how do I think about correlating your business relative to industrial production trend? Eric Gerstenberg: Yes, Michael. So I would say that we are obviously very balanced as we said in the investor presentation. The -- all of our four business units in Environmental Services experienced strong continued growth and strong continued need of their services as we look in throughout the year. We haven't really seen -- we have not seen any slowdown across the verticals that we serve. Mike Battles: And Industrial Production -- Industrial Services, in particular, Michael, they had a pretty good comp to prior year. Q1 was kind of one of the first quarter -- first full quarter we owned hydrochem and so that was kind of a tough quarter for us as we did a lot of change management. And so I would say that also helped decide is that we had -- and I think HPC is doing terrific. I think that acquisition is going to turn out to be a home run. We did have a pretty good comp in Q1 versus Q1 last year. Operator: And next, we'll go to Jerry Revich from Goldman Sachs. Jerry Revich: I wonder if you could just talk a little bit more about ES, really strong pricing across incinerators and then the hazardous waste landfills. How much of that is mix? And how does that look from here based on what you expect to churn through the business over the course of 2Q? Eric Gerstenberg: Yes, Jerry. It's -- we've continued to say we continue to drive favorable mix by focusing across the incineration network on those higher-priced direct burn and quantities to manage through our network, and that will continue to be our strategy across the board. The volume is up as well as noted. And we've seen improvement as we've driven pricing across all the segments of our businesses in ES, and we'll continue to do that. Jerry Revich: And maybe just to pick up there, so nice continued margin expansion for you folks in the quarter. Can you just talk about the cadence of margin expansion that you expect over the course of '23? I know you laid out the EBITDA growth outlook, but I'm wondering if we could just expand that conversation to margins given what you laid out as the opportunity set at the Analyst Day? Mike Battles: Yes, Jerry, this is Mike Battles. I'll answer that. So Q2, modest margin expansion, I would say, given such how Q2 was such a strong quarter for us last year. Q3 and Q4, I think the margin expansion is at the same level or even a little faster than where we landed in Q1. So again, I'm really bullish about the ES business. I think that it had a great start, and I think there's going to be more ability to drive kind of margin expansion in the back half of the year. Jerry Revich: Super. And lastly, can I ask? On the additives topic, it sounds like we started to see better supply. Can you just talk about where that's tracking and how you expect your mix to evolve as a result? Eric Gerstenberg: Yes, Jerry. The additive supply issue has subsided. We're able to get additives to continue to grow our blended growth strategy. Mike Battles: Jerry, in your question you asked earlier, did you want to know the ES margins or the consolidated margins? I was answering the ES margins, not the consolidated margins. I hope that was your question. Jerry Revich: Mike, you read my mind well, as usual, the ES. Operator: And next, we'll go to Jim Ricchiuti from Needham. Jim Ricchiuti: I'm just wondering if you can size the impact of the disruption of flooding in California on the business in the quarter. Mike Battles: Yes, sure. So we think in the ES business, it was kind of $8 million to $10 million, where plant disruptions in general, not just the flooding in California, but we had some unplanned outages early in the quarter in the ES business. So I think that was -- I think that drove that. But I want to caution you, Jim, though, that when you think about the bad weather and you say, well, you take our results and add $8 million to $10 million on it, that's even better. And that may be true. But bad weather is sometimes a good thing for us, right? Because it helps us with -- in our Field Service business. As Eric said, we're across the board way up and Field Service had a great quarter this quarter. And I think at least part of that was due to bad weather, the fact there was some -- a lot of manhole clean up in the utility space. A lot of work to be done there, that Field Service kind of takes advantage of. So it's always dangerous to -- we're trying to explain the weather challenges on the plants, because 80% utilization is low and landfill volumes are down. And so we try to use -- make sure that the street understands kind of what happened and why that was very temporary. But it's -- I wouldn't take our results, just add $10 million and call it good. Jim Ricchiuti: Yes. That's fair enough. So apart from the -- what you saw in Field Services, were there any unusual emergency response work in ES that you saw in Q1? Eric Gerstenberg: No, Jim, there really wasn't. We saw continued across the board demand, no large projects to really call out. Mike Battles: It's a lot of small ones, really. Jim Ricchiuti: Got it. And -- you've talked about pricing for a while now and -- in the ES side of the business. And I'm wondering, to what extent the pricing is a tailwind in the current quarter and then as you look out to the second half, because there have been a few price initiatives that you've taken over the course of the last several quarters. Mike Battles: Yes, Jim. So when you think about pricing in Q1, I'd say about 75% of the ES growth is pricing the quarter of it, as Eric said, it's mix and volume. And I think that I think we've done a really good job at pricing. We had a decent comp from prior year. We didn't really get into the price increases until, let's say, mid Q1, if you recall from last year. So really, we had a relatively decent comp to kind of work against on the ES on the pricing side. That said, we continue to drive price kind of across the network on all, whether it be FS, PSI, SK branch business. We've been able to drive price across the board, and I think that continues. Our costs are way up, and you didn't ask the question, but I'm going to answer anyways. Whether it be our maintenance costs or our facility costs or our people costs, they still remain really high. And so our need really is to drive -- continue to drive price to to network and also take out costs. And I want to stress that, especially to our customers who may be listening that we are very aggressive in driving cost out of the business. You see it in our corporate costs, they're down year-over-year. I haven't seen a company yet that's had corporate costs down year-over-year. That's due to our ability to kind of really try to manage our cost structure very well, move headcount to lower-cost jurisdictions and really drive that business and keep those costs low while we service our customers. Operator: And we'll take our next question from Tobey Sommer from Truist. Tobey Sommer: I wanted to ask a couple of pricing questions. With respect to pricing in ES at the industry level, how do you think the experience at Clean Harbors and pricing trends compare to the industry as a whole to the extent you can see into that? Mike Battles: Tough to say, Tobey, exactly. We kind of focus on what we can do versus talking about what the industry has done. So I can't -- it's hard for me, Tobey, to speak -- and first of all, welcome. Welcome to the call. Thank you for your coverage. The -- I just don't -- I'm not really sure about that. I wouldn't want to speculate as to industry trends. But certainly, Clean Harbors as I said, we had a pretty easy comp, not easy comp, but a decent comp. And we've been aggressive on price, because we've had to, because of our cost structure and our costs have gone up so much. Tobey Sommer: And another question on price, I appreciate that answer. Are there any businesses certainly incinerators, you talked about that pricing being very strong or pockets of customers where there is more resistance to price increases? And what's your process for handling those customers and maintaining discipline where there is pressure? Eric Gerstenberg: Yes, Tobey, this is Eric. I'll answer that one. So there is. The Industrial Business has been traditionally one of the areas that has been the toughest to push price. However, we've been very aggressive in our position with those customers. We've aligned ourselves with the right customers, so to speak, based on our increase in costs and trying to push our increase in labor across them, and we've been aggressive in doing that. At the end of the day, there always is some customers that we need to walk away from, so that we can utilize our assets and people and those customers that we want to align with. So across the board, though, we push hard and we value our relationships across the board with our customers. Tobey Sommer: And then shifting gears, what's your experience been year-to-date with respect to employee trends for retention and acceptance rate for new hires? Across our coverage, we've heard of a pretty marked improvement in both those dimensions at many firms. So we're curious if you're experiencing the same thing. Eric Dugas: Yes, Tobey, Eric Dugas here. I'll address that one. I think what we're seeing here in the first quarter is on the retention front with employees, turnover really improving. So I think if we look at our stats, our turnover rate is down closer to what it was prepandemic in 2019. And really, that's helping us see -- going back to the cost play, that's certainly helping us see wages moderate a little bit against the backdrop of inflation. So that's helpful. On the hiring front, certainly made great headways, particularly with drivers over the last 12 months which, again, having more internal drivers drives internalization of that transportation cost and is helping us there as well. So our HR team has been quite busy over the last several quarters with hiring. And we're really being able to kind of close some strategic positions on the direct labor side that's helping us drive our revenues. Eric Gerstenberg: Yes, Tobey, as we said in our Investor Day presentation, we've put a lot of emphasis across the board on our employee programs to lower our turnover, drive additional net headcount. Those dividends have really paid off across the board as show up in our numbers as well. Operator: And our next question comes from Noah Kaye from Oppenheimer. Noah Kaye: I wanted to talk about some of the M&A you've done in the past. You talked about HPC being a winner. Sometimes the focus on synergies capture both, from a cost side and revenue side, tends to dissipate as you lap that first full year. But it's really only been literally 1.5 years since you closed that. So it would just be great to get an update on where ultimately synergies have shaken out from both, a cost and revenue perspective? And then the second part is, now that you have Thompson in the fold and HPC, just wanted to get your appetite on additional M&A opportunities in Industrial Services and within ES more broadly. Mike Battles: Well, I'll answer the first one, and I'll let Eric G. answer the second part. So you see it, Noah, in a lot of different areas. So first of all, we signed up to $40 million of cost savings within the HPC acquisition. I think we've picked that in more -- and we didn't sign up for any revenue synergies when we gave the guidance because even I think I've talked before, it's really hard to identify a real cross-sell opportunity because who got the sale? Did the field service person who's calling on that customer get the sale? Or is it an HBC employee? But clearly, we are getting a lot more work from -- a lot more Field and Tech Service and SK business out of our Industrial Services businesses. So it certainly is happening. Hard to pinpoint exactly how much. And that's why we don't kind of guide to that. We don't put that numbers. But I do think that there's plenty of upside there. The other thing we talked a lot about, which we're seeing a lot of progress on is the automation services that the hydrochem team did and bringing that to Canada, bringing that type of technology to our customers through our legacy industrial business that didn't really have much of it, nor in our Canadian business, we didn't have much of it. And really been very busy trying to do more automation, which is safer and more profitable in our legacy customers, both in the U.S. and Canada. And so again, I think that's been a -- that's been a really good win and the margins are getting kind of up to -- when we bought it kind of on the low end, mid-teens to maybe ultimately high teens over the next few years as we talked about kind of an Investor Day. The last thing I'd say is that we took a lot of good learnings and applied some of that to Thompson, and I know it's only been one month, and we've only been doing it for a few weeks now. But I think Eric and I are both really pleased with kind of the early returns and their thoughtfulness and their processes. And I think that will turn out to be a winner as well. Eric, if you want to talk about kind of M&A? Eric Gerstenberg: Yes. No, just one other comment to add to what Mike just said on Thompson Industrial. Day one with Thompson Industrial that the operations and sales team over there was excited to join the team and have the ability to sell our disposal network in the same customer base that they've been driving revenue from. When we look at M&A across the board in Environmental Services, the pipeline continues to be strong, not only in IS opportunities, but we're seeing opportunities in TS businesses, FS businesses as well. So it continues to sign -- show signs of robustness as we get more into 2023 here. Noah Kaye: A question on SKSS. I think you identified improving mix of blended as one of the controllable levers for maintaining profitability in this segment over the course of the year? Can you expand on what impacted the mix of blended this quarter? And how you might expect mix to trend over the course of the year? I'm really interested in any sort of substantive color you can give on what's happening in the segment there. Mike Battles: Yes. So Q1, not a great start and blended gallons down a little bit than what we expected. But I do think the team has done a good job of driving blended gallons. I think we're going to beat last year's number. We'll do better than that, but it's not a straight line. And so Q1 was a bit of a disappointment. We put a little more pressure on the results, right? So I think that there's going to be 20% more blended kind of year-over-year when the dust settles on this, certainly not in Q1 so far. Operator: We'll take our next question from David Manthey from Baird. David Manthey: Sorry, I've been jumping between calls here, so I apologize if you've answered this already. But could you talk about incinerator price mix during the quarter and just general activity levels among the key customer groups, particularly the chemical complex and any comments on turnarounds for 2023? Eric Gerstenberg: Yes, David, this is Eric. Mike alluded to earlier, we're seeing really 20 -- about 75% really price, 25% mix and volume improvement. So that's strong across the chemical vertical, strong volumes, direct burns, continue that we see that throughout our network and are driving that and continue to be strong outlooks across the board. David Manthey: Okay. And then this is a conceptual question. You guide to adjusted EBITDA, not revenues. I'm just wondering why is that? Do you feel you have more control over EBITDA regardless of what the market throws at us? Just any background there would be helpful. Mike Battles: Yes, David. The reason why we don't guide on revenue is, because in the oil side of the business, we're a price taker, right? So it's very hard for us to guide on an oil number when that can move around, as you know, pretty rapidly. So we tend to kind of focus on kind of managing a spread between the price we sell base oil on and the collection. The price we pay or charge for during motor oil. And so that's really, we try to stick to the EBITDA number on that side. And so because that's 20% of the business, we tend not to give revenue guidance because of that. Operator: And there appear to be no further questions at this time. I'd like to turn the call over to Mr. Gerstenberg for closing remarks. Eric Gerstenberg: Thanks, everyone, for joining us today. Mike, Eric, Jim and I will be participating at the Oppenheimer and Goldman Sachs conferences next week and a handful more in early June. We look forward to seeing some of you at those events. Operator: Excellent. Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.CLH Ratings Summary
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Clean Harbors Reports Strong Q4 Results & Outlook
Clean Harbors, Inc. (NYSE:CLH) reported its Q4 results, with EPS of $0.89 coming in above the consensus estimate of $0.68. Revenue came in at $1.12 billion, compared to the consensus estimate of $1.02 billion.
The company experienced strong top-line growth in Q4 driven by its HPC acquisition and robust demand across most of the business. However, margins contracted as cost inflation continued to increase.
The company provided its full 2022-year guidance, which came in slightly ahead of the Street expectations, and noted that it expects oil spreads to narrow following favorable demand and supply dynamics in 2021.
