Earnings Call: Q4 2020

Feb 24, 2021

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 and SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, February 24, 2021. Information on potential factors and risks that could affect our actual results of operations is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revision to the statements made in today's call other than through filings made concerning this reporting period. In addition, today's discussion will include references to non GAAP measures. Clean Harvest believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of non GAAP 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. Now, I'd like to turn the call over to our CEO, Alan McKim. Alan? Thanks, Michael. Good morning, everyone, and thank you for joining us. Starting on Slide 3. We concluded 2020 with a strong Q4. Our Environmental Service segment outperformed our expectations, driven by a combination of factors, including the level of high value disposal network, greater than expected COVID decontamination work and ongoing cost controls. Total 4th quarter revenues were in line with expectations as our Safety Kleen business remained constrained by the effects of the pandemic. Adjusted EBITDA in Q4 increased to $136,100,000 which included $5,600,000 in benefits from government programs, primarily from Canada. For the full year, adjusted EBITDA grew by 3% to 555,300,000 dollars with annual margins growing to 17.7%. We generated record adjusted free cash flow of 2 $65,000,000 a noteworthy accomplishment considering the economic disruption caused by the pandemic. Without question, the success we achieved in 2020 is a direct result of the dedication, flexibility and perseverance of our exceptional team. 2020 was a challenging year on many levels, and I'd like to publicly acknowledge all the employees across our organization, particularly those on the front lines for their outstanding work this past year. Thanks to you, we delivered essential products and services to our customers despite facing many obstacles as the pandemic disrupted beginning with Environmental Services on Slide 4. Revenue, while down year over year due to market conditions, was up on a sequential basis. Typically, Q4 is a seasonally weaker quarter for us, but the $18,000,000 increase from Q3 is evidence that many of our markets are on the road to recovery. We also saw strong disposal and recycling volumes to close out the year. Adjusted EBITDA grew by 13% from a year ago with margins up nearly 400 basis points. This was driven by a combination of business mix, cost savings and $3,900,000 in benefits from government assistance programs in Q4. Revenue from our COVID-nineteen decon work totaled $31,000,000 in Q4. For the full year, our team completed nearly 14,000 responses and was an essential resourcing in protecting our customers' people and facilities. In Q4, we benefited from a record level of drums collected as well as some high value complex waste streams we received into our network. This resulted in an average price per pound increase of 16% from the year earlier period when we saw more bulk streams. Incentoration utilization in the quarter was 84% due to a higher than expected number of maintenance days. Landfill volumes were down 37% in the quarter as the lack of remediation of waste projects opportunities intensified with the resurgence of the pandemic. However, our strong base landfill business largely offset that decline with a 42% increase in our average price per ton. Moving to Slide 5. Safety Kleen revenue was down 15% from a year ago, but was flat sequentially as the ongoing recovery offset normal year end seasonality. Vehicles miles driven had been on a nice upward trajectory throughout the summer, but plateaued a bit in Q4 with the COVID-nineteen surge resulting in some new local restrictions in areas such as California and all across Canada. Most of our core services in the SK branch business were down year over year as a result, but flat from Q3. Safety Kleen's adjusted EBITDA declined 21%, mostly due to the lower revenue and business mix. This decline was partly offset by our cost reductions initiatives as well as the government assistance programs that provided $1,400,000 of benefits in Q4. Waste oil collections were 49 point excuse me, were 49,000,000 gallons in Q4 with a healthy average charge for oil, given the lack of available outlets for generators. On the SK Oil side, we saw typical seasonal softening of the demand for base oil and lube products. However, due to lower production levels in the traditional refinery space, available base oil and lubricant supply shrank in the quarter, resulting in a rising price environment that should benefit us here in 2021. Percentages of blended products and direct volumes came in as expected and consistent with prior year. Turning to Slide 6. Looking back at 2020 from a capital allocation standpoint, our strategy due to the pandemic was focused on capital preservation, which served us well. CapEx in Q4 was slightly higher than the prior year, but our full year spend was down from 2019. Moving forward, we expect to focus on internal growth capital on our plants and other assets that we believe generate the best returns. From an M and A standpoint, our opportunity pipeline is healthy as businesses emerge from the pandemic and we gain a clear line of sight on our end markets. We prudently increased our level of share repurchases in Q4 and had an active repurchase program for the year, and Mike will provide the detail on our buyback shortly. Looking ahead, we're beginning 2021 in excellent shape, both operationally and financially. The markets we serve are on an upward trajectory. For our lines of business that have been held back by the pandemic, such as waste projects and remediation, we expect a measurable recovery this year. In 2021, we expect to pursue growth opportunities through our core suite of service offerings and by capitalizing on market conditions. And Mike is going to talk about our new sustainability report in a moment. But let me say that we expect to take full advantage of the growing market acceptance of our sustainable offerings in 2021 beyond. We provide a broad array of green solutions that go well beyond our role as the largest collector and recycler of waste oil. Within Environmental Services, year with higher deferred revenue and given the availability of waste in the marketplace, we expect strong incineration performance in 2021. We anticipate our offerings within Industrial Services and Tech Services to grow from last year. We expect field services to generate $25,000,000 to $35,000,000 of COVID related revenues in 2021. Within Safety Kleen, we remain below normal demand levels as we kick off 2021. However, later this year, we anticipate a steady recovery in the SK branch business. For Safety Clean Oil, our refineries are producing well. And as I mentioned, pricing for both base oil and blended products is favorable to start the year. We will continue to actively manage our charge for oil rates, while focusing on growing collection volumes to supply our re refinery network and take advantage of market conditions for recycled fuel oil. In summary, while 2020 did not go as we originally envisioned for our 40th anniversary due to the pandemic, we did achieve record adjusted EBITDA and adjusted free cash flow, thanks to our amazing team. As I look at 2021, the underlying dynamics in both our operating segments remain positive, and we expect a strong sales growth year with healthy free cash flow as a result. I anticipate another great year for the company in 2021. So with that, let me turn it over to Mike Battles. Mike? Thank you, Alan, and good morning, everyone. Before I take you through the financials, let me comment briefly on our 1st ever sustainability report, which is available on the IR section of our website. We're proud of this document, which created based on the Sustainability Accounting Standard Board framework. The document highlights the integral role that sustainability plays in our business decisions as well as our environmental, social and governments goals and benchmarks for 2,030. The at a glance page of the report shown on Slide 8 gives an overview of some of our ESG benchmarks. I want to reiterate the point that Alan made about ESG and sustainability as foundational to our business. For many customers, we are their sustainability solution. When companies generate potentially harmful byproducts, they call Clean Harbors safely remove and dispose of them. When they accidentally release chemicals into the environment, they call clean harbors to help clean it up. When they have waste oil, solvents, precious metals or paint, they call clean harbors to recycle. The new report also highlights the vital role our employees play in our performance. We strive to create a diverse and inclusive culture, one that values the unique backgrounds, perspectives and experiences of our people. We are committed to building a sustainable culture through training programs that enable our employees to have to enjoy long and successful careers at Clean Harbors. I encourage everyone to take a look through the report. It provides a detailed picture of how closely intertwined sustainability is with our entire organization, culture and business model. Now let's turn to Slide 9 in your income statement. We ended 2020 on a high note with another strong financial performance. If you'd asked me back in April when the pandemic began what level of revenue, adjusted EBITDA and adjusted free cash flow we would have delivered this year, these would have not been the numbers. Our Q4 adjusted EBITDA results exceed the guidance we provided in November. Revenue declined 9% year over year, but was up from the Q3 despite Q4 typically being a sequentially lower quarter due to seasonality. Our efforts to control costs and grow our highest margin businesses combined with some further government program assistance, resulted in 180 basis point improvement in gross margin. Adjusted EBITDA grew 3 percent to $136,100,000 Our Q4 adjusted EBITDA margin rising 190 basis points from last year speaks to the effectiveness of the actions we have taken this year. We have improved our adjusted EBITDA margins on a year over year basis for 12 consecutive quarters. For the full year, our adjusted EBITDA margins grew 17.7% grew to 17.7%. If you excluded the $42,300,000 of government assistance, those margins would have been 16.3% or a 50 basis point improvement from 2019. SG and A total costs were down in the quarter based on our lower revenue and cost controls, but on a margin basis were essentially flat. For the full year, SG and A as a percentage of revenue was 14.3%, which beat our target of 14.5%. For 2021, using the midpoint of our guidance range, we would expect SG and A to be up in absolute dollars from the prior year and essentially flat on a percentage basis. Depreciation and amortization in Q4 was down to 71,400,000 dollars For the full year, our depreciation and amortization was $292,900,000 which was within our expected range. 2021, we expect depreciation and amortization in the range of $280,000,000 to 290,000,000 dollars Income from operations in Q4 increased by 18%, reflecting a higher gross profit, cost controls and mix of revenue. For the full year, our income from operations rose 10% to 251,300,000 Turning to Slide 10. We conclude the year with our balance sheet in terrific shape. Cash and short term marketable securities at December 31 were $571,000,000 up nearly $40,000,000 from the end of Q3. Our debt was at $1,560,000,000 at year end with leverage on a net debt basis at 1.8 times, our lowest level in a decade. Our weighted average cost of debt is 4.2% with a healthy mix, healthy blend of fixed and variable debt. With the recent revolver we put in place, we have no debt maturities until 2024. Turning to cash flows on Slide 11. Cash from operations in Q4 was $113,200,000 CapEx net of disposals was up slightly to $43,600,000 That combination resulted in adjusted free cash flow in Q4 of $69,600,000 For the year, we hit our net CapEx target, excluding the purchase of our headquarters, with $165,600,000 of spend. That helped us deliver record annual adjusted free cash flow of 265,000,000 dollars which is towards the high end of our guidance range. For 2021, we expect net CapEx in the range of $185,000,000 to $205,000,000 which is higher than prior year. Our net CapEx as a percentage of revenue ranks as one of the lowest amongst our specialty waste peers. During the quarter, we increased the level of our share repurchases as we bought back 500,000 shares at an average price just under $71 for a total buyback of $35,000,000 In 2020, we repurchased slightly over 1,200,000 shares Of our authorized $600,000,000 share repurchase program, we have just under $210,000,000 remaining. Moving to guidance on Slide 12. Based on our 2020 results and current market conditions, we expect 2021 adjusted EBITDA in the range of $545,000,000 to $585,000,000 As we noted in this morning's release, we are revising our calculation of adjusted EBITDA to exclude stock based compensation to be consistent with all of our company's loan agreements and facilitate comparison with industry peers. That amount in 2021 should be about $16,000,000 to $18,000,000 compared with $18,500,000 in 2020. Looking at our guidance from a quarterly perspective, we expect Q1 adjusted EBITDA using our revised definition to be 5% to 10% below prior year levels given the record Q1 results we posted in 2020 prior to the pandemic taking hold and the deep freeze we are experiencing in the Midwest and the Gulf here in February. Here's how our full year 2021 guidance translates from a segment perspective. In Environmental Services, we expect adjusted EBITDA to decline in the mid single digit on a percentage basis from 2020. We expect to benefit from growth and profitability within incineration, a rebound in the majority of our service businesses, along with our comprehensive cost measures, but not enough to fully offset the decline in high margin decontamination work as well as the large contribution from government assistance programs in 2020 that totaled $27,100,000 in this segment. For Safety Kleen, we anticipate adjusted EBITDA to increase in the mid to high single digits on a percentage basis from 2020. Despite the fact this segment received $12,200,000 in government assistance last year, We expect a mild rebound in the branch business weighted toward the second half of the year post vaccination. At the same time, we expect SK Oil to deliver a vastly improved performance in 2020 given the current base oil industry supply dynamics as well as our ability to aggressively manage our re refining spread and collect more gallons of waste oil. In our corporate segment, we expect negative adjusted EBITDA to be flat with 2020, which includes $3,000,000 of government assistance. For 2021, our EBITDA guidance assumes receiving $2,000,000 to $3,000,000 of Canadian government assistance. We are not assuming any additional CARES in 2021 at this time, but we are reviewing the new program. Based on our EBITDA guidance and working capital assumptions, we now expect 2021 adjusted free cash flow in the range of $215,000,000 to $255,000,000 We believe this puts us in a great position on our capital allocation strategy. In summary, although the pandemic is still with us, we entered the New Year with strong momentum in multiple service businesses and most importantly across our facilities network. Industrial production in the U. S. Is back on the rise by all indications, particularly in the chemical space. The chemical activity parameter published by the American Chemistry Council show that industry levels have been climbing sequentially from May to January, and January was the first time in 10 months that the activity levels were above the prior year, which is a great sign for us. In addition, our re refinery business is off to a great start given the current market conditions. We expect some of the project and turnaround work that was pushed out in 2020 to benefit us this year and the overall sales pipeline remains strong. While we are seeing COVID cases decline sharply in recent weeks, anticipate continued opportunities for near term decontamination work and disposal of vaccination waste volumes. Overall, the number of favorable industry and regulatory trends should support our business moving forward. And while we don't give specific revenue guidance, we certainly expect a return to top line growth in 2021. With that, Christine, please open up the call for questions. Thank you. We will now be conducting a question and answer Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question. Hey, good morning, guys. Good morning. Hey, Tyler. Hey Mike, appreciate all the guidance, but I do want to come back to the Q1 guide real quickly. So you mentioned that Q1 was a really good quarter if I actually go back and look at my notes. But you also talked about these winter storms. Is there any way that you could kind of quantify maybe cost downtime, how much of a drag that's going to be? Yes, Tyler. So we're just experiencing it right now like the rest of our competitors are and certainly has an impact in the Gulf and in the Texas. And at the end of the day, we think those plants have been down for a bit. I think it's going to come they're coming back online kind of today and tomorrow. I don't think it's a huge number. And also, as you know, Tyler, when these things happen, as you see in the paper in Bloomberg and other areas, I mean, pipes are cracking, and that's going to create spill opportunities for clean for clean harbors to be there to help clean it up. And so I think that I don't think it's a huge number. I think it is a number certainly in Q1. Okay, interesting. So Alan, this is a bigger picture question. So I'm curious what you mean by when you say that you're seeing customers shifting towards greater environmental responsibility that aligns with your offering. That was something that you guys put in the press release. So is that a comment about captive incinerators maybe shutting down or plants being more stringent on their cleaning? I guess my big picture question here is in a clearly more ESG focused world, do you think that that translates into a better growth algorithm for Clean Harbors than maybe it has in the past? I do. I think that I think people are becoming more and more aware of the environment and certainly you're hearing more about the warming of the planet and the effects of missions. And I think when you look at our ESG report, it really is fantastic about how we are really a net benefitter from a greenhouse gas standpoint. And I think people will realize that whether it's relying on us to relying on us to recycle solvents and oils and so many other things, paint waste and the like. I think more and more of our offerings would be prioritized or accepted because of that green nature of what we're doing. Yes. No, that's very helpful. And then my last one, just quickly on CapEx. So I think you're calling it for I'm going to call it gross CapEx of $200,000,000 I look back over the last few years and you exclude the headquarter buyout, it's been sitting around there. So as we look out, is that a pretty good placeholder? And then Alan, you mentioned some of those, I think, internal growth opportunities, some of that spend. So how do we think about CapEx maybe on down the road balancing some of those investments? Tyler, I'll start with the first one and Alan can talk about growth CapEx. So as we mentioned, our CapEx as a percentage of revenue is one of the lower amongst the industry and that stays there. 6%, 6.5%, I think there's a pretty low answer. I think as revenue grows, I think that we'll continue to make those CapEx investments. That excludes any type of large incinerator or any other types of big CapEx that's out there. If that were to happen, we certainly would call that out. Yes. Okay, perfect. Thank you. Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question. Good morning, everyone, and great execution to your team from the front line up in a challenging year. I want to press a little bit on the capital allocation questions here. I think clearly you're extremely cash rich. Following up on Tyler's point, there's a big CapEx spend envisioned for 2021. Can you just give us a little bit more insight on how you stack everything up in terms of priorities here, repurchase some color on the M and A pipeline. Clearly, this isn't an optimal leverage position for the company at this point looking at growth. So what do you want investors to expect that you're going to do over the next 12 months to address that? Yes, I think our priority really is acquisitions. So I think the company has shown that it has done some really fantastic deals to be able to acquire companies, move them to our platform and really take advantage of the scale that we have. And I think that would be at the top of our list. I think over the past year, clearly, we have been been impacted on our ability to go through a normal process of due diligence and integration and any the way that we typically would go about in M and A, it's really been disrupted because of the pandemic. And we really think that with this pandemic now getting behind us, as I think many people feel like it is over the next few months, that we can be more aggressive. And I think that would be the key thing that you should be looking for with use of capital this year. Okay. That's very helpful. And then can I push a little bit more on the question around ESG and related tailwinds with respect to the closed loop offering? Looking at where Performance Plus and EcoPower are now and the opportunity for a recycled oil and greener product to get more penetration in the market, How big of a priority is that for you in this next year or 2 to really push that direct sales percentage upwards? Do you see any traction happening because of some of these sustainability considerations? And again, what do you think investors should be expecting in terms of the trajectory for that direct sales to grow? Yes, I think you'll continue to see us improve in that area. I think the Department of Energy finally came out with a study that we have been waiting for to be updated from 2,006 or 2,008, which was very favorable to 8, which was very favorable to the use of waste oil into recycled lubricants and base oil. And there were about 18 recommendations that come out of that DOE study that just come out last month. And our hope is that this administration will take a number of those recommendations and implement change, whether it be on incentives or getting government to be a larger buyer of these re refined products. The government today is a large customer of ours, but predominantly Army. And so many of the other agencies would be strong buyers of our re refined products. So I think you're going to see a real favorable movement with this administration taking some of those DOE suggestions and moving forward with them. Great. Moving forward to that. Thank you so much. Yes. Thanks, Donald. Our next question comes from the line of David Manthey with Baird. Please proceed with your question. Yes. Hi, good morning, guys. Good morning. Hi, David. So, incinerator utilization used to hit the 90% range and higher periodically. But really over the past 2 or more years, it's only done so in 1 quarter. And I'm wondering, is there any structural reason why this is or should we expect that to continue? Just any help on that. It seems like it was it used to be 90% pretty regularly and now it's rarely so. Hey, Dave, this is Mike. I'll take a shot at it. I mean, I think what's happened over the past couple of years is those kind of higher margin streams have come into the low margin soil jobs. And overall, it's a good thing, frankly. And my view is that time and again is that mid-80s, high-80s, anywhere in that range is good. And then from there, it's just a mix of business that goes from there. Certainly nothing structural and we certainly know where the money is being made and know where the value is and take very good care of those incinerators. Okay. Yes, sounds like a high class problem. That's good. And second, in the release, you said with fewer waste oil outlets available, market rates charged for used motor oil remained high. Can you outline any near term cyclical issues, but also the longer term secular factors that are at play behind that statement? Yes, I think there's just been such a glut of re refined products. As you know, the refinery the major refineries out there certainly have scaled back a lot of their plants. And with that, the reduction in fuel and gasoline and subsequently base oil. So that's been positive for our base oil business. But as it relates to jet fuel particularly, which is basically kerosene, we've seen a lot of that surplus go into the fuels market and the bunker market, particularly with IMO going to 0.5 percent sulfur, it appears to us that what we've seen is those surplus gallons going into the fuels market rather than the aviation market. And therefore, the outlet for recycled fuel oils, like the surplus of industrial oils that we see has shrunk. And some of it might have been pandemic related, but I think more of it was just a change in how the market is moving with IMO. And so I think this year as the airline industry recovers and everybody's guess on when that's going to take place and how fast it's going to happen, we think we're in a really good position here to again see our base oil and our re refined oil become a real attractive outlet for waste oil. Oil. Our next question comes from the line of Hamzah Mazari with Jefferies. Please proceed with your question. Hi, this is Mario Cortellacci filling in for Hamzah. Just a question on PFAS with the new head of the EPA. Could you just talk about whether you think legislation gets done quickly or a timeline you think that could happen in regarding PFAS? And then any updated views or your best guess on what will happen there? Just wondering if you have any high level thoughts on potential revenue opportunities or at least how much of the pie you thought you think you guys can capture, if that becomes an opportunity? And then alternatively, do you view PFAS legislation as a negative or neutral or positive for the solid waste companies? So I'm not going to comment on the solid waste companies. I'll let the solid waste guys comment on that. But I'd say that I think that the Democratic House, Senate and White House is going to move along PFAS legislation much faster than in another scenario. And I think that we know that PFAS is dangerous. We know that it ultimately will get some form of hazardous designation. The challenge today is PFAS is not hazardous. And so we got to work through that. But I do think that is certainly is not really in our budget or guidance numbers today, but certainly I think that has a long term impact in the industry. And regardless of how it needs to be disposed, whether through landfills, closed loop landfills or incineration or water treatment, we have all those solutions. So I think we're in a really great position to address the PFAS issue as it becomes more and more real. Yes. I think from a legislative standpoint, it'd be positive for our business. Absolutely. It wouldn't be a negative at all to us at this point. Great. And then just following up on the M and A question. I mean, could you give us a little more detail on where you're particularly focused in 2021? And then maybe you can comment on what valuations are looking like right now. Yes. Certainly, the waste disposal side of our business, our tech services business, which now includes Safety Kleen and Biometal, That is an area where we have we think some real opportunities to continue to grow to drive more volume across our network to leverage our recycling assets. We have last year put in significant capital investments into our incinerators to expand our capacity. Some of it includes shredding, others are just more tankage and more feed systems and better feed systems. You'll continue to see us invest more in our end disposal and our recycling assets. And so expanding our collection network and growing our volume, which we've been really Q4 was up about 50,000 drums. So I think when you look at our deferred over 70,000,000 that kind of speaks to just the volume of waste that we have in the network. And that is really where we want to focus our M and A activity on is to continue to grow that side of our business. Got it. And then just one more and I'll turn it over. And then just some clarification, I might have missed it earlier in the call or in the prepared remarks, but could you just remind us what you're thinking on COVID-nineteen cleanup or how much is baked into 2021? And then can you also just remind us what the margin profile is for that business? Sure. So just so it's about $120,000,000 for 2020. And we said $25,000,000 to $35,000,000 in revenue in 2021. I think that's a reasonable estimate. The margin profile is a high margin business. It's in the mid to high and upper 30s. Our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question. Thank you very much. Can we do a little bit of a waterfall, if we could, to pull take your revised, so the $573,000,000 on a like to like basis to the guidance EBITDA and waterfall, the known it doesn't repeat. There's a reduction in decontamination and then sort of recovery part, what are those pieces to bridge, let's say, the midpoint of 2021? Yes, Michael, I'll take a shot at that. So the 2 big kind of headwinds we have going into 2021 is we're assuming that the decontamination work drops kind of precipitously from the $120,000,000 we did in 2020 to, let's say, a midpoint of $30,000,000 in 2021. So that $90,000,000 drop of revenue is going to take a number of 30%, 35%. It's going to have a big impact on our earnings. And then also, we did get $42,000,000 of government funding, both in the U. S. And with the majority in Canada. That drops also from, let's say, dollars 42,000,000 to 2 or 2.5 dollars And so those are, let's say, the 2 kind of monster headwinds that we're going to have to address here in 2021. And that's a good thing. I'm really bullish on, as I said in my prepared remarks, about our end markets and the growth in our end markets, whether it be in waste projects and remediation, whether it be household hazardous waste days in, let's say, in the ES side. And of course, on the SK side, the re refineries were down for months. Last year, we shut them down because of lack of demand. And so those come back on and we should have a really good year. And so I think that you look at the numbers on an apples to apples basis, it's down a little bit and you're like, well, gee, that's interesting. But really, it's due to kind of the one off unique things and the overall business growing again, which is really what we needed to do. So if I follow that math and it's a baseline starting at $500,000 goes to midpoint at $545,000,000 so you're up 8% on a like to like basis? That's right, about that, yes. Okay. And so am I thinking about this number correctly? If I look at if I take the 120 out of $20,000,000 and then compare revenues year over year, you're down almost $390,000,000 That's right. That $390,000,000 is would you call it all pandemic related because of whatever got disrupted, delayed, deferred, that's all pandemic related? Absolutely. Therefore, is there any assumption in your outlook of some of that already being recovered in the guidance and how much are you assuming and therefore that's the potential upside surprise, the pace of which we resume that same $390,000,000 of activity. That's absolutely you got it exactly right. It is that is the organic growth number, if you will, taking out the decon work and that is the X factor is how fast do people get on the road again, how fast do people kind of change their motor oil again. That is the environmental services business did pretty well And we're going to lose the decon work, but then we're also going to pick up, let's say, household hazardous waste days, which been on hold for months. And those I think that's a kind of a modest growth in that business. I think we should also mention that we gave away quite a number of price concessions to a lot of our top accounts. And when crude oil crashed in the second quarter, a number of our customers came to us looking for concessions and certainly we gave those and we've been working with our customers. But our goal this year is to normalize our pricing again. We've recently raised prices on our incineration business, particularly because of just the sheer demand and volume. So I think there's some price improvements in there, both on concessions getting back to normal and the price increases. Absolutely the case. You're right. And so how would you want us to think about that $390,000,000 How much of that $390,000,000 and let's just apply the corporate average margin that call it, $17,500,000 to that. How much of that's in the low to the high of guidance? On the high end of the guidance, we get all the way back there. And on the low end, we're obviously going short of that. Okay. So that's the way to think about what that opportunity is. And then can we talk about some of your metrics? You all have done a really good job of moving the free cash flow as a conversion of your EBITDA out of the 30s into the 40s. You're in this sort of low 40% of EBITDA now, 43%, 45%. Percent. Is that sort of the where it is and now it's all about the sustainable growth of it, doing the asset utilization and pricing? Or is there still improvements in the actual ratio? Michael, I'm sitting here with my CEO. He'll never say we're done, right? He'll never would never acknowledge that, oh, no, we're in great shape, just keep it going, right? I do think there's opportunity there. The team does a great job of kind of we have 5 refurbishments jobs, for example. We build our own trucks there and we're going to continue to do that, maybe expand on that. There's opportunities here to drive more free cash flow, better working capital management, better controls of inventory and receivables. I mean, there's I don't think there's a I think cash conversion is always upside to be fair. So if you thought about that, that was a setup. I knew Alan was sitting there going, of course, it's going up. Where can it go? What's practical? Yes. Our goal is to get to $300,000,000 in free cash flow, and I don't think it all has to be through earnings. And so I think that we're going to we have as part of our incentive plans, we all have targets to lower our receivables. We all have targets to lower inventory and to manage our working capital better. And I think there's using systems and processes for just that. And if I thought about that $300,000,000 as a percentage of your EBITDA, what do you think that is? Let's the future time will tell how fast, but I do think that we've had great trajectory. As you know, we've had a 8%, 9% CAGR on free cash flow over the past few years and that should continue. Okay. Then lastly for me on Safety Kleen Oil, what was the plant production volume in 2020? And are we back to $150,000,000 is what should be produced in 2021, so I can compare those two numbers? I don't have the historical number, but all plants are kind of fully operational here in 2021. So 2021, you assume to do you should, all things being equal, put out 150,000,000 gallons of base oil? Probably a little bit less than 2019 still because of the first quarter here. That's right. The pandemic still having impacts on overall miles driven. But we certainly as you know, we shut down 4 of our plants for a number of weeks because of and several for months because of not enough oil to collect because of all the shutdowns and not enough oil to sell because of the same. So I think you're going to see that come back nicely this year. Okay. And I've said one last one. I just want to clarify on PFAS. You don't actually need legislation. If EPA puts out an MCL and then enforces to the MCL, that in itself will drive the part of the market that's most important to you, which is remediation. And legislation would be more about what might happen on the drinking water side. Would you agree with that? Yes, I think that's true. And we're certainly seeing opportunities. We have a pipeline of PFAS opportunities for sure. And we see customers realizing that they need to get ahead of that. And again, most of this that we see is a lot of it is foam fire related and fire foam related, I should say. And I think those are the natural locations where they're trying to quantify and understand what the legislation or EPA mandating certain changes, I think, would be helpful to have a framework to work around. Got it. Thank you so much. Thanks Mike. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question. Thank you so much. I was looking over the transcript from last year's call at this time and obviously it was before the pandemic really had an impact, but there was a lot of conversation about IMO 2020. You talked a little bit about this and I know it may be tough to quantify, but is there any positive impact that you're building into your guidance for 2021 from that? Not yet. No, it's really been such a disruption, as you know, particularly with just the jet fuel market, particularly the glut in that fuel. So I think until that works itself out, it's really difficult to quantify right now. Okay. That's fair enough. And then one kind of housekeeping note. Mike, you talked a little bit about the change in the adjusted EBITDA calculation for next year. I do understand it, but why now? I mean, the peers have been doing it for a long time. It's been in your leverage agreements for a long time. What precipitated this change? Yes, Jeff, good question. 2 things. First of all, we did change kind of all our debt agreements and the last one was to change was the revolver, which we did in November. And so that was a we thought that was a good time to do it. And we thought the 1st of the year would be a perfect time to do it and set expectations appropriately. And those were kind of the driving reasons. Okay, great. That's very helpful. Thanks so much. Okay, Tim. Our next question comes from the line of Larry Solow with SGS Securities. Please proceed with your question. Great. Thanks guys. Good morning and congrats on a really good year and a challenging environment for sure. Thanks, Larry. Just a few questions on just on the mix and the pricing. You mentioned, Alan, you're going to perhaps firm up some pricing on the incinerator and the disposable business. Just trying to parse that out with obviously mix has driven a great improvement last few years and even this quarter, just looking at the quarter first, was there anything unusual with the 16% increase in price per pound on the incinerator side and over 40 in the landfill. Any unique waste streams in there? And I think there was something that arrived like late in Q3. Does that sort of benefit this quarter? And second part of the question is, how do you as you look out over the next few years, do you see sort of some of these gains in mix at least slowing? Can you continue to at least maintain this pricing and maybe improve it slowly over time? Yes, Larry, I'll start and Alan, feel free to chime in. Larry, this is really just a continuation of what's been happening all last year, where kind of high margin waste streams us going after aggressively marketing and going after these waste streams and achieving getting these waste streams into our network. Alan talked about drum volumes. Drum volume is very profitable business for us and we have a lot of drums in Q4. And I don't see that I don't think that's unique a Q4 thing. I think that the price per pound is great, probably a little higher than normal. We've had this we've had double digit kind of pricing all year, Larry, and that just continues here in Q4. I don't see that changing. We talked to the team and they said the pipeline is strong to continue to get these kind of high margin streams and I don't see that kind of changing certainly in the near term. And I think just two things that I would add to it is that we're seeing new generators, right? And so you've had this chemical renaissance where low natural gas pricing has really brought back a number of plants and manufacturing to the states. And so we're seeing the new plants now starting up, new waste streams coming into the market and some of those are real difficult streams to handle. We're also seeing captives reducing and also being impacted from the pandemic and subsequently maybe outsourcing more of their material than they historically had because of the pandemic or because of the maybe demand on some of their operations. So there has been a little bit of that going on, on the captive side. So I think both those things really help us from a mix and average price per pound. And on the captives, as they start to outsource more, does this inevitably lead them towards a full closure of their captive? I would think if they outsource more, maybe that's even less efficient for them, sort of double paying, if you will. Most captives have been built as sort of an end of the pipe of their production facility. And many times, it's because of the difficult type of waste streams that they are that they actually put that kind of capital investment in. And with all the changes that have gone on in the chemical industry, the acquisitions, the divestitures, the impact on regulations to those plants has certainly driven some of them to look at outsourcing, as well as a reduction in some cases of volumes being handled at those captive sites making it economical to now look at outsourcing it rather than continue to run a captive plant maybe at 30% or 40% utilization. So I would say those are the things that are driving that change, Larry. Right. Okay. And just switching gears, Rob, on the Safety Kleen side, you mentioned collection prices remain high. As the price of oil starts to come back up or at least in the beginning of 'twenty one, it's certainly rebounding. Does this face more challenges that maybe oil plays don't necessarily give you their oil at just a high price if the underlying value is increasing? No, Larry. It's really we manage to spread as we said before and that put some pressure on our charge for oil program. But I think that really what we need is demand to come back and we do see that happening here in 2021. Okay. And then just lastly on the cost cuts and whatnot. Obviously in 2020, I think you guys did an expedited job in sort of keeping the cost down as revenue sort of swooned in the middle of the year. I would think this makes for a little bit of a difficult comp as things come back, but it does seem like you guys are some of this has been sort of offset by productivity gains and maybe you're not bringing back all of your staff or maybe is less third party and more direct expenses or direct employees? Perhaps you could just give us a little more light on that. I think a little bit of both, right? Certainly, we have learned to operate with a lot less people and a lot of people working from home. And so we have certainly been able to reduce cost in many areas of the business and we think that those costs can continue to be at those reduced levels. And that's I think why you're looking at SG and A and some of the benefits we see grow through there this year. Mike, did you want to add anything? Yes. I was just going to say, Larry, that as you look at 2021, things like that we got a natural benefit for, like healthcare or T and E or commissions, I mean those we hope come back with the economy coming back and people being able to travel and people hitting their incentive targets and getting commission payments, that's great. But that only happens if the economy does come back. If it doesn't come back, I think that will still stay at these lower levels. I also would say that Alan and the team did a good job of of using the pandemic and leveraging the pandemic to look at 3rd party spend and drive and do a lot more things internally, whether it be 3rd party subcontractors, 3rd party labor, 3rd party trucking, I mean those costs, they don't come back. I think those costs stay out of the business. And we definitely use the pandemic as a catalyst to drive some of that out of those costs out of the business. Got it. Okay, great. I appreciate that. Thanks, guys. Thanks, Larry. Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question. Hi, good morning. The question on the COVID related work that you're anticipating, let's call it the $30,000,000 at the midpoint. Is the assumption that that's more, I would assume, is more front end loaded? Is that are you seeing that activity at a relatively higher level in Q1 again because of what we're seeing? Yes, Jim, that's definitely loaded in the first half of the year. We do think that with the turn of the calendar, we had as you know, we had a great finish and that decon level of that was still there. It didn't change in January. We do see it now, as I mentioned in my prepared remarks, we do see it starting to slow and frankly, that's a good thing. So it's mostly that midpoint of $30,000,000 is definitely a first half phenomenon. And certainly, we have a backlog in our field services business so that our intent here is we're going to take a lot of those people and responses and get back into the basic field services side of our business, which certainly got impacted quite a bit with the COVID, but the response work certainly offset that. But we have a lot of backlog across our business here and we think that capacity will free up and be utilized in other parts of our business now. Alan, is there any way to maybe size that field service backlog that might have been deferred a bit just because of you dealing with some of the COVID related emergency work? Yes, it's hard to quantify, but the pipeline is really good in that business. It's strong with the consolidation of Safety Kleen Environmental with Clean Clean Environmental with Clean Harvest Tech Services, we're seeing a lot more project opportunities coming across. And quite frankly, those are smaller jobs, but a lot more of them. And honestly, we weren't as responsive probably to that cross sell as we could have been last year due to just the demand we had from COVID. And so I think we're going to be more responsive. We're going to convert more of that those opportunities into field services moving forward. And it sounds like you've been encouraged by the pickup in the ES business, certainly from the lows. I think that's probably fair to say. I'm wondering as you look at that business, which areas chemicals clearly has been a nice recovery, which areas have been lagging that we might start to see pick up as you think about 'twenty Certainly, the refining side of the our refining business, which is about a $500,000,000 business for us, they're really been hit hard, particularly with in the Gulf area, as you know. And so I would say that's going to lag. The oil and gas industries, particularly in Western Canada, some of the work that we do out in the oil and gas drilling side, the waste disposal we get off of the drilling rigs and what have you, that's obviously just starting to come back. So those are some of the parts of the industries or the verticals that we're seeing lag behind. But our manufacturing is really strong, chemical is really strong, pharmaceutical, biotech, those industries are really strong. We're winning some really nice business in that area. So I think all in all, we feel pretty good that our customers are coming back. Got it. On the SK business, the branch business, does that maybe you could just remind us seasonality in Q1. Is there any I guess what I'm asking is it was kind of a flattish Q4 versus Q3. Are you seeing signs there of the pickup in activity? Or is it still too early in the year to really make any draw any conclusions from what you're seeing? No, I think the Safety Kleen branch business, which is 100 locations strong, did get impacted certainly with some of the weather related shutdowns that you're seeing here in the last couple of weeks. But and moving into 2021, we saw a lot of markets still frozen with COVID and shutdowns, particularly in Ontario, Quebec, Alberta, California, significant shutdowns and curtailment of activities out there. So that really hurts the Safety Kleen branch side of the business. But we're really optimistic that when things turn on and the government opens up more of the country, both the U. S. And Canada, then we'll see a real uptick in activity for the branch. And I think that's why Mike sort of said it's more back end loaded there. Fair enough. Last question, Mike, I may have missed it. Did you give any guidance for tax rate in 'twenty one? I didn't, but it should be in the kind of mid to high 20s. Okay. Terrific. Thank you. We have no further questions at this time. I would now like to turn the floor back over to management for closing comments. Okay. Thanks for joining us today. We continue to maintain a busy IR calendar with many upcoming virtual events, including JPMorgan, Raymond James, Bank of America and Stifel. And we look forward to connecting with many of you there, and I hope that all of you and your families stay safe. Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.