Earnings Call: Q3 2020

Nov 4, 2020

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors Inc. Thank you, Mr. McDonald. 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. Matt, as 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, November 4, 2020. 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 Harbors 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. And 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 delivered exceptional results in Q3, and I can't say enough about the efforts of our team in driving these outstanding performance. Since the outset of the pandemic in March, everyone from really the top levels of the organization to our frontline workers have excelled in response to this challenge and it's truly been a team effort. At its core, Clean Harbors is a crisis response company and we can still thrive in difficult environments like the one we've all faced over the past 8 months. And the resiliency of our organization and the versatility of our business model clearly were evident here in Q3. Revenue, while down year over year due to the unprecedented market conditions, was up nearly $70,000,000 on a sequential basis. This growth was driven by an accelerated recovery in several core lines of business in our Environmental Services segment. At the same time, we also saw a strong sequential pickup within Safety Kleen. Adjusted EBITDA of $161,200,000 included $13,300,000 in government programs, primarily from the revised CEWS legislation in Canada. The high level of EBITDA supported by controlled capital spending resulted in adjusted free cash flow of 100 and $23,500,000 a quarterly record for the company. Mike will review the P and L in more details in his remarks. Turning to our segment results on Slide 4. Environmental Service revenues declined 10% from a year ago, but were up 6% from Q2 as many of our service businesses bounced back from the early days of the pandemic. Adjusted EBITDA grew 16%. This increase was attributable in part to our cost reduction efforts, productivity improvements and a healthy mix of higher margin work. The 2 government programs accounted for $10,000,000 of adjusted dollars of adjusted EBITDA in this segment. Revenue from our COVID-nineteen decon work totaled $29,000,000 and our team has now completed a total of more than 9,000 COVID-nineteen responses. Though incineration utilization dipped to 80% due to the timing of turnarounds and a production lag from some of our customers, we continue to execute on our strategy to capture high value waste streams across our network. This resulted in an average price per pound increase of 5% from the year earlier period. Landfill volumes declined 6% as strong base business largely offset the lack of remediation and waste project opportunities. Moving to Slide 5. Safety Kleen revenue was down 18% from a year ago, but up 17% sequentially due to the recovery in both the branch and the SK Oil businesses. The lifting of local restrictions across much of North America led to a sharp increase in vehicle miles driven, generating higher lubricant demand. The recovery in demand for base oil and lube products enabled us to restart 3 of our re refineries during Q3. Given the declining market value of waste oil, we maintained excuse me, we maintained high charge for oil rates used for motor oil and increased our collection volumes to 50,000,000 15% mostly due to the lower revenue. This decline was partly offset by our cost reduction initiatives as well as the government assistance programs that provided $2,500,000 to this segment in Q3. Box washer services were off 10% in the quarter, which was promising given that we originally expected the SK branch business to be at 85% of normal levels in Q3. Percentages of blended products and direct volumes came in as expected, but at lower volumes overall. Turning to capital allocation on Slide 6. In light of the pandemic, our strategy has been more about capital preservation to ensure that we exit this global crisis well positioned for growth, and I am confident that we will. CapEx spend was extremely low in the quarter, and we will continue to proceed with caution on every internal dollar spent. That being said, we continue to invest in certain projects, particularly at our plants that we believe will generate a strong return. In terms of M and A activity, opportunities are available and we have been exercising patience though as we believe that we can be more opportunistic going forward in light of the pandemic. In terms of share repurchases and debt repayment, we are active on both fronts in Q3. Looking ahead, we entered the final quarter of 2020 in great shape. On the sales side, we're working closely with customers to help drive a measurable recovery in many of our core businesses. Our national footprint, reputation for safety and emergency response capabilities have been competitive differentiators for us. On the bottom line, our prudent cost actions and careful capital spending have helped us generate record margins and cash flow, free cash flow in the past two quarters. Our decontamination business continues to serve as a natural hedge against further slowdowns in other parts of our company. Within Environmental Services, we expect strong incineration utilization in Q4 based on the lower planned turnaround days and the availability of waste in the marketplace. We anticipate our offerings within industrial services and tech services to close out the year on an upward trajectory. Field services remains on track for a phenomenal year due to the COVID related revenues, which we expect to exceed $100,000,000 Within Safety Kleen, we remain below normal demand levels, but we've seen a vast improvement for the lows of the April May timeframe. We're continuing to monitor and manage the impact of localized COVID outbreaks. Obviously, new shelter in place mandates could derail our recovery in the Safety Kleen branch business. But to date, we have seen nice steady recovery since both the U. S. And Canada reopened. For Safety Kleen Oil, our primary re refineries are all back online and base oil pricing is stable due to the supply conditions brought about by recent hurricanes along the Gulf Coast. We continue to actively manage our charge for oil rates as we seek to further grow our collection volumes to supply our network. So in conclusion, we are encouraged about our overall prospect as we enter the final quarter of 2020. Our Q3 results confirm the resiliency of this company. The team continues to outperform the aggressive targets that we set for ourselves and I'd like to take this opportunity to again publicly thank them for their efforts. Despite the economic uncertainties that all companies are facing in today's environment, we are confident that we have put our company in the best position possible to succeed as we close out 2020. So with that, let me turn it over to Mike Battles. Mike? Thank you, Alan, and good morning, everyone. Our company clearly delivered outstanding results this quarter. I want to echo Alan's remarks about the organization. We have an outstanding team that is able to meet the needs of our customers during a crisis like the pandemic in ways most companies cannot. It is not just the decontamination work where we are heading into locations that others have evacuated for safety reasons. It is the fundamental DNA of Clean Harbors and how this company measures up the challenges. We excel at generating new revenue streams, meeting customer needs during times of disruption and improving operational efficiencies, all while doing it safely and under rapidly evolving health protocols. I said this over in my remarks last quarter and they're worth repeating. I couldn't be more proud of the way our organization has met the challenges of this pandemic head on. Turning to Slide 8 in our income statement. Our 3rd quarter results exceeded the expectations we set when we resumed guidance in August. Revenues declined 13% year over year, but on a sequential basis was up nearly $70,000,000 Preparing for the possibility of a protracted we have continually we have continued to aggressively manage our cost structure. These comprehensive efforts combined with assistance we received from government programs, mostly Canada this quarter, resulted in a 310 basis point improvement in gross margins. Adjusted EBITDA increased to 100 and and $61,200,000 from a year ago. Excluding the government assistance, adjusted EBITDA would have been $147,900,000 down only 6% year over year despite revenues being 13% lower. Adjusted EBITDA margins of 20.7% 310 basis points was up 310 basis points from last year's Q3, which speaks to the effectiveness of our actions. We have now improved our adjusted EBITDA margins on a year over year basis for 11 consecutive quarters. Given our lower revenue, our SG and A total was down in the quarter, but our performance also demonstrates the benefits of our cost reduction and productivity efforts. We lowered SG and A by nearly $16,000,000 or 13% in Q3. Of that total, dollars 2,800,000 was related to the impact of CARES and CUES. I would like to point out that these programs have been critical to support headcount levels higher than they would have otherwise been both here and in Canada. In the quarter, we saw the full impact of the series of productivity programs and cost actions we initiated in Q2. Our ability to rapidly flex down our structure and maintain expenses at a lower level even as revenues were coming back was a key factor in our strong Q3 results. For full year 2020, we are targeting SG and A of approximately 14.5 percent of revenue continuing a positive trend that began several years ago. Depreciation and amortization in Q3 was up slightly at $74,500,000 For the full year, we continue to expect depreciation and amortization in the range of $285,000,000 to $295,000,000 which is slightly below last year. Income from operations increased by 4%, reflecting the higher gross profit and our overall effectiveness at managing the business. Earnings per share was $0.99 in Q3 versus $0.65 a year ago or $0.90 versus $0.72 on an adjusted basis. Turning to Slide 9, we concluded Q3 with our balance sheet in great shape. Cash and short term marketable securities at September 30 exceeded $530,000,000 Our liquidity increased even though we paid back the remaining $75,000,000 of funds we had drawn on the revolver out of the abundance of caution when the pandemic began. Our payables and receivable balance grew in the quarter along with the business, but both categories remain well below last year levels and our collections team is doing an outstanding job keeping cash coming in the door. Our debt obligations decreased to below $1,560,000,000 with the pay down of the revolver. Leverage on a net debt basis now sits at 1.9 times for the trailing 12 months ended ninethirty, which is our lowest level in nearly a decade. Our weighted average cost of debt remains at an attractive 4.2% with a healthy blend of fixed and variable debt. Last week, we renewed our revolving credit facility with our lending group led by Bank of America and we're grateful for their continued strong support. We put a new 5 year $400,000,000 lending facility in place. We typically use this asset backed loan agreement only for letters of credit. Turning to cash flows on Slide 10. Cash from operations in Q3 was nearly flat with prior year at 143,900,000 dollars CapEx net of disposals was down more than 60 percent to $20,400,000 reflecting our COVID response plan to be extremely cost prudent with our The result was record adjusted free cash flow in Q3 of $123,500,000 which is 35% ahead of 2019. For the year, we continue to target CapEx net of disposals and excluding the purchase of our headquarters in the range of $155,000,000 to $175,000,000 During the quarter, we stepped up our share repurchases as we bought back 400,000 shares at an average price of just over $55 for a total buyback of $22,200,000 in Q3. Year to date, we have repurchased slightly above 700,000 shares. Of our authorized $600,000,000 share repurchase program, we have $245,000,000 remaining. Moving to guidance on Slide 11, given our performance and based on current market conditions, we are raising our 2020 guidance. We now expect 2020 adjusted EBITDA the range of $530,000,000 to $550,000,000 While this guidance assumes continued localized outbreaks of the virus, it does not assume a national shelter in place order due to COVID-nineteen. This guidance also assumes $3,000,000 to $5,000,000 of government subsidy money in Q4. Here's how our full year 2020 guidance translates from a segment perspective. In Environmental Services, we expect adjusted EBITDA to grow in the low teens percentage above 20 19's level of 446,000,000 dollars Growth and profitability within incineration, contributions from the expected $100,000,000 plus of decontamination work, government assistance programs and a rebound in the majority of our services business and comprehensive cost measures are driving this positive result. For Safety Kleen, we anticipate adjusted EBITDA to decline in the high teens percentage from 20 nineteen's $282,000,000 We expect the branch business to remain below pre COVID levels in Q4, but continuing to improve from Q2 levels as it did in Q3. At the same time, we expect SK Oil to continue its recovery from Q2 where we temporarily closed our re refineries. We have continued to be successful at aggressively managing the front end of our re refining spread. In our corporate segment, we expect negative adjusted EBITDA to be up a few percentage points from 20 nineteen's $188,000,000 due to increases in 401 contributions, environmental liabilities, severance and bad debt, mostly offset by lower incentive compensation and cost savings. Based on our current EBITDA guidance and working capital assumptions, we now expect 2020 adjusted free cash flow in the range of $250,000,000 to $270,000,000 We believe this puts us in an enviable position to execute the cost allocation strategy that Alan outlined. To summarize, the company delivered an exceptional quarter both operationally and financially. We entered the last quarter of the year with fairly strong momentum across our facilities network, including our re refineries and within the majority of our service businesses. For the most part, the macroeconomic end markets we serve continue to improve. Chemical and industrial production, which paused a bit in Q2, began to resume in Q3. As more prices in the economy have reopened in the U. S. And Canada, vehicle miles driven has increased. We see a steady march forward to close out the year, albeit with normal seasonality in some of our businesses. We also continue to see some project and turnaround work pushed out until 2021 along with new opportunities such as PFAS that should benefit us down the road. But overall, we believe the short term and longer term trends within both our operating segments favor us. We look forward to closing out 2020 on a strong note and we are well positioned as we head into 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 Noah Kaye with Oppenheimer. Please proceed with your question. Good morning and thanks so much for taking the questions. And first, congratulations on these results. I think if you know if anybody on the sell side would you guys be able to do flat EBITDA year over year back in April? Nobody was there, consensus of $100,000,000 below the midpoint of your guide. So nice job really managing all aspects of the business. And that really leads into kind of a high class problem type of question, which is capital allocation. And I think you've got to start with around $245,000,000 left, I think, on your share repurchase program. And at the free cash flow you're expecting to generate in the Q4. I mean, not that it's feasible necessarily to do that, but you could basically exhaust that program and still exit the year at around $300,000,000 cash balance, which is kind of a traditional midpoint for you. So just help us understand here where you sit now on capital allocation? Why not be a bit more aggressive on the share buybacks? Is there something out there that is really enticing you from an NAA perspective? It doesn't necessarily sound like that's the case. And if not, why not go a bit more aggressive on the buybacks? Sure. I'll start, maybe Mike can chime in. I think when we think about where we are from a capital standpoint, there are acquisition opportunities out there and we continue to be aggressive and looking at a lot of deals. And that is something that we really would like to try to do with the strong balance sheet that we have. And so I think that clearly is important. I think second is, although we've cut back on capital spending quite a bit this year, there are number of projects that we're working on to expand our existing facilities, expand our plants. And so next year, we'll be spending more capital as we've gone through the engineering and permitting and what have you. So we really want to expand capacity and get a good return on our capital investments into our plants. And this year, we also have some really nice projects that we've put in within our incineration facilities to improve volumes as well as debottleneck. I think personally, I think where we've been the beneficiary of some of these government programs, we've been somewhat reluctant to be really aggressive in the stock buyback program, quite frankly. And if it wasn't for those programs, then we would have had to deal with even more employee reductions and other additional cost savings. So, I think that's held us back a little bit. But certainly next year, we can continue to look at stock buybacks as a use of capital. Mike, I don't know if you have anything else you want to chime in on. Yes. Noah, thanks for your kind words upfront. And I actually kind of say, if you would ask any of us here in the room back in April, May where we would have landed, I don't think anyone would have said flat to PY. That's so we were kind of waiting. We drew on the revolver. We were looking at covenants. I mean, we were doing all the things that everyone else in the world was doing. And it just worked out that given all that as I said in my prepared remarks, the DNA of the company was to look for opportunities and we found one with the decontamination work and that really helped us kind of bridge the gap here. And again, we're really proud of kind of where we landed, where we will land 2020. And I think it puts us in a, as Alan said, puts us in a great spot in 2021. What Alan said 90 days ago, I still rings true. We did M and A has been slowed down because we are worried about conserving capital and I think we're on the back end of that now. I think we feel pretty good about going into 2021. And I think there are targets out there and including all four pillars, whether it be CapEx, as Alan said, there's a lot of debon liking good ideas out there. There's M and A opportunities and we're very aggressive in looking at that. And the buybacks, we did do a fairly large buyback in Q3, not at the numbers that we could do, but certainly want to support the stock and we will continue to do that. That's helpful. Thanks so much. And raises my follow-up question really off of Alan's comments, which is around potential expansion of the incinerators. I think the question here is really, as you look at both the recovery dynamics from the initial trough of the pandemic and maybe longer term considerations around the captives. And is there how is your appetite now to do some meaningful expansions here at the incinerator network? We know it takes a couple of years from the permitting aside and several years to construct. Are you incrementally inclined to do that at this point? Yes, we certainly are. I think as we look back at our 3rd incinerator that we built within El Dorado facility, we're extremely pleased with the performance there and what the team has been able to do and continues to do there. We certainly see a lot more investment going in the chemical space here in the U. S. And particularly in the Gulf. And so we're seeing more opportunities, more waste streams, and we're trying to make sure that we're partnering with our customers to align with what they're going to be generating and be able to handle that in our plants. And then we also have the unknown with PFAS. And so we truly believe that as we move forward in the regulatory environment that destroying those forever chemicals through incineration is really the best way of dealing with them and that might drive some additional need for capacity. But even if it is to be landfilled, if a land is an acceptable treatment method through regulation, then we're certainly well positioned there as well with our landfills. And we can certainly build out more capacity if we need to in our landfills and put more capital there too. Yes. Okay. That's very helpful. Thanks so much. Our next question comes from the line of David Manthey with Baird. Please proceed with your question. Yes. Thank you. Good morning, everyone. Good morning. My first question is regarding the IMO 2020 and SKO. Could you just talk about your thoughts as it relates to that opportunity? The question out there is just has this eventuality of improved spread dynamics at SKO stemming from the supply and demand imbalances in used motor oil relative to IMO 2020? Yes, certainly, David, as you know, in the very early beginnings of 2020, we saw that thing playing out the way we had hoped, but nothing since. And the whole disruption has taken place because of the pandemic, particularly in the airline industry where it's just a huge decline in jet fuel consumption and subsequently some of those fuels and diesels and others just becoming such a glut. And so we haven't seen it really materialize to the level that we would have hoped. And I think it's going to take some time into 2021 as that part of the industry kind of comes back where maybe we'll start seeing the IMO 2020 impact that we had hoped for in both the marine diesel oil market and subsequently maybe in the base oil market as well. But I think we're probably at least 12 months away from anything meaningful out of it. Right. It sounds like you're doing a pretty good job of managing the spread in the interim based on what you reported here today. 2nd, could you talk about these cost reduction in productivity efforts? Could you just, at a high level, outline what happened in the Q3 and then give us an idea of what might be in the tank for Q4 in 2021? Yes, Dave, I'll take that. This is Mike. Good morning. I'd say that we have different costs, right? Some costs that come back, I think, in a post vaccinated world, whether it be some healthcare savings we've experienced, incentive compensation, maybe some T and E come back over some period of time. But there are other costs we've labor utilization over time and other things we've managed very well. Labor utilization over time and other things we've managed very well. I don't think those and we took as we talked about, took out some heads here in the SG and A world. I don't think those come back at the same level until revenue is really there and the business is there and they may not come back ever. And so I really do believe that in areas like in leases and other areas, we even have some material savings that again I don't believe can come back at the same levels in a post vaccinated world. And so there's one bucket of cost that probably does come back. There's a larger bucket, I don't think it does. And how much that affects our EBITDA margins going forward? I think that's a real number there. And is it 10 basis points? I don't know, but it certainly is there's certainly a winner there that allowed us to do some things that we probably were probably needed to do and puts us in a good spot in a post vaccine world. Right. Sounds good. All right. Thank you very much. Our next question comes from the line of Michael Hoffman with Stifel. Please proceed with your question. Hey, thanks, Alan and Mike and Jim. Can you catch us up and remind us then what's in guidance for these government programs, just so we have a sort of a total number to play with? And then how do we think about what that comparability is next year? How much of that's for doesn't have to be repaid versus does? Yes, Michael. So this is Mike and I'll take a shot at it. So on the P and L, there's we'll end the year we're at $36,000,000 right now. We'll get, as I said in my remarks, dollars 3,000,000 to $5,000,000 So let's say that gets to $40,000,000 that does not get paid back. That is a grant. Most of it's Canada. That is a wage subsidy, and that not reimbursed by the to us. The other part of the equation though is part of the CARES Act as most companies have not been paying payroll taxes and that number is about $11,000,000 $12,000,000 a quarter. So let's say through the last two quarters, which has only been applicable, is about $24,000,000 but we'll end the year with $36,000,000 of additional cash flows that will have to be repaid, dollars 18,000,000 in 2021 $18,000,000 in 2022. But so there are 2 parts of this. Part of it is reimbursable, which is the payroll tax and part of it is not reimbursable, which is just a government grant, mostly in Canada. So given how strong free cash flow is, why not prepay the CARES Act and just take it off the table from a comparability standpoint? We think that our sell side analysts and our investors are smart enough to adjust for that. And I think that it's I'd rather have the tax the interest free loan and invest that in our business. Okay. And then if you took out the decon work and then what we know about these the P and L hit positive impacts from the grants, our calculation is you still meaningfully improve margins. This isn't all about on the back of government programs and decon that you and so that's a part one of that. And then how much of that do you get to retain on a permanent basis? I mean that is the big question of how much of these cost saves do we kind of retain. I think that's a valid question. We have to go through a budget process to get through it. As I said to one of the other sell sides is that I think a meaningful amount stays. And just to be clear with the turn of the calendar, I don't think the decontamination work kind of goes away. I do think that is going to be with us for quite a period. Will it be $100,000,000 in 2021? No. I hope not, frankly. But it will be a number there that will be kind of a soft landing, if you will, as you look at 2021. But we have as you know Mike, we have to go through the budgeting process. We have to go through all that. It is a challenge for us and all the companies in the space, but how we think about 2021 because it really depends on kind of when a vaccine is available to us. And so to that end, some of that savings was things like incentive comp and bonus accruals. Have the are all those all caught up given that your guidance is almost on top of your original 2020 or better in some cases like the free cash flow? As you know, Michael, we set our targets at above the Street numbers. We hold ourselves to a higher standard to get our full bonuses. Will there be some bonuses? Yes, but not at the levels that they were in 2019. And still below the original plan of 2020. So 2021 accruals will be higher if everything stays the course they are is what I guess I'm trying to get at. That's right. That's right. Yes, that will be I'm hopeful that's a headwind in 2021. Yes, it'd be a nice problem to have. And then, Alan, the investments you were making this year on the capital, how do we think about what the incremental EBITDA contributions from those are in 2021 2022? I don't have a number here quantified to share with you, but I think as we continue to drive margin improvement and talk as we have about why we think some of the things that we're doing to internalize third party disposal costs, transportation to put in more processing in our facilities, which allows us to eliminate some of the double and in some cases even triple handling of some of our drums. That's why you're going to continue to see those margins improve, but I can't kind of quantify them right at the moment here. We have to go through a budget process, Michael. But be clear, 11 straight quarters of year over year margin expansion, that is done kind of well before COVID, well before incentive compensation down and healthcare went down. Those were things we were doing led by Alan and the team to kind of improve efficiencies across the network. And then on cash flow from ops at the midpoint of the revised numbers from 2Q to 3Q, it's about $45,000,000 What's the split between a profit contribution and working capital? That will help you get back to you on. I love it when I get the stump you, Mike. I prepared pretty robust for this call and you got me. So, Alan, last one. Veolia is trying to buy SUEZ. Do you think they end up selling their U. S. Businesses to help fund it? Well, certainly, we're looking at what is going on with that transaction and we're really not sure what the implications will be here in the U. S. As you know, we acquired the facility from SUEZ in 2006 in El Dorado. So they exited the environmental business back then and maybe something like that might happen again, but we really don't know. We'd only be guessing at this point. Okay. Well, nice job for really improving this business fundamentally as well as participating in the recovery of the economy. Thanks, Michael. Our next question comes from the line of Hamzah Mazari with Jefferies. Please proceed with your question. Hey, good morning. Thank you. Alan, I was hoping you could maybe just touch on what you're hearing on PFAS. What avenue you think it could go down? I know clearly there's an election result that hasn't come out yet that may have an impact, but just any thoughts as to where that is stuck in the process? And maybe any thoughts as how that could impact your P and L long term? Yes, certainly, we really think we need sort of a federal mandate here. We really need a federal program. And I think when each state starts taking on their own initiatives, I think it gets confusing sometimes. And we end up dealing with things differently from state to state, which is not helpful. So if we do have a change in administration, I think probably we would see more aggressive focus on getting regulatory framework put in place, PFAS. And we do believe that incineration is at least for contaminated materials. Groundwater, on the other hand, we do have treatment capabilities and we've been doing a lot of that kind of PFAS groundwater recovery. And so I think we have all the tools in our toolbox and I think what we really need is that regulatory framework. Got it. And then just on the landfill volume side, you had mentioned lack of remediation and some waste projects. Is there pent up demand there? Do you see did you sort of walk through what your pipeline looks like there and just outlook on the landfill volume side? Absolutely, there's pent up. We have a lot of business that got pushed and subsequently has been pushed into 2021. A lot of it is really more to do with the pandemic. I think it's just moving people, having whether it's the consultants or government officials or other folks, regulators being on these sites that need to oversee some of these larger projects that we end up working on, that's all been disrupted and has delayed a number of projects. And so I think there'll be a built up I know I know you touched on sort of costs coming back and certain costs structurally not coming back. But do you have a number around predict longer term, but what's the incremental margin today in your business? Yes. Hamzah, it's hard to kind of put a number on that depending on kind of where that what kind of revenue we get in and different waste streams have different margin contribution margin percentages. But back to my point, we've had 11 straight quarters of year over year margin expansion. We've tried to target 25 to 50 basis points of margin expansion a year. I'm confident that we'll continue down that path in 2020 and beyond. Got it. Thank you so much. Okay. Thank you, Hamzah. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question. Thanks so much. Had a couple of questions on the Environmental Services segment. Incinerator utilization was down pretty significant year over year. You talked about some production lag from the Q2 and some timing of turnarounds. Where do you think that goes? Do you think 3Q was the bottom? And when do you think we'll get back kind of normalized levels, obviously assuming you don't add any capacity? Hi, Jeff. This is Mike. I'll start now and feel free to jump in. I do think that the Q3 low utilization, we talked about that in the Q2 call that we had some slower demand and we saw that July started to pick up. We did have some more down days this quarter than in prior quarters that led to kind of a low utilization number. I wouldn't read too far into that. I would say that our pipeline as we look at 2021 is better than it was at this time last year. And that has to do with win rates and timing and everything else along with that. But make no mistake, we're very bullish about 2021 and we feel like we're going to all this pent up demand, as we said in an earlier question, is there, whether it be turnarounds, whether it be remediations and waste projects, there's a very healthy pipeline and I'm really confident that this will translate into incremental revenue in 2021 as the economy gets back to whatever normal looks like. All right. That's great to hear. And then continuing just on the incineration side, the average price per pound, you had a nice increase because of continued mix improvements. Do you expect that to continue in the Q4? And any color on where you think prices are going next year would be helpful. Thanks. So we certainly paused on our price and margin initiatives around this area because of the virus and certainly what we saw our customers dealing with. Across the board customers were looking for lower pricing or some type of temporarily relief while they were going their challenges. And we work with a lot of customers in that regard. And we hope that we will go back to where we were and then in 2021 begin the process of improving pricing again through our pricing initiatives because we do have to continue to make those capital investments. And I think customers, we've been working with them in regard to that. So hopefully just a little bit of understanding that this was a really, really tough year to try to do anything around price, but we think we can get back on track with that next year. Yes. Like our peers have said, we're going to be kind of back on track with pricing in 2021. And the good news is that deferred revenue did grow in Q3 and that does give us good indications for Q4. Okay. That's really helpful. Thanks so much. Our next question comes from the line of Tyler Brown with Raymond James. Please proceed with your question. Hey, good morning, guys. Hi, Tyler. Hey, Mike. Can you put a finer point on incentive comp? In the guide, just how much is incentive comp held versus 100% accrual? Again, I'm just trying to get all the puts and takes here. Yes, I'd say it's a $10,000,000 to $12,000,000 good guide. Okay. Okay, that's helpful. And then Alan, I'm just curious, so and I'm going to switch over to SK real quick. If I'm a local body shop, do I pay you a monthly or annual subscription and you come do a prescribed service? Or is that done more on a requested basis? I guess my question is, in Q3, did you get any extra boost from a rush of service as all of these body shops and quick lubes kind of reopened? Sure. Yes. So two points, I guess. One is we have about 800,000 subscriptions with the Safety Kleen customer base. Pots washer, a used motor oil, a vac, they are on a subscription plan and we may do an 8 week or 12 week or 16 week kind of thing. So it's an awesome business. And since we've acquired that in 2012, we've almost doubled the EBITDA margin in that business. So we believe that that will continue to grow for us. I think second, yes, we saw a lot of ad hoc work. We did have some furloughs in that part of our business. And so when the business started coming back on, we got inundated quite frankly with some service requests. And so we played a little bit of catch up here just because of the share disruption. We were showing up at customer sites as part of our subscription service and customers were closed. And so back in April May, everything we had to redo all of our subscription plans and fortunately we were able to get those services back on track. But there was quite a bit of disruption with our customers in that area. Okay. Okay. That's helpful. Yes, I appreciate that. Very helpful. At this point though, what percent of the re refining capacity is online roughly? So I think we only have one re refinery that represents about 15,000,000 gallons. West Coast sits down. So everything else is online here. So we still should be in that 150,000,000 gallon or so level of base oil manufacturing. Okay, okay. Very helpful. And I'm going to switch back to Yesteris real quick. And this may be a bit of a silly question, but of the 9,000 decontaminations that you've done year to date, are all of those basically sporadic in nature? Or do you have some customers who are saying, hey, we want you guys to come every weekend and do a deep clean? Again, I'm just trying to kind of understand how recurring that line is. We have national contracts with a lot of companies that really need a national response company that can handle locations all over North America. And so those contracts, they are ad hoc like you would expect. We get calls when we're needed. And every night we see our nightly calls come in. There could be 30 or 40 calls a day for those requests. And sometimes it could be 1,000 square foot warehouse or it could be a 5,000 square foot office. But almost all of that business is coming from our national contracts that rely on us to do that across the board. Okay. Okay, that's helpful. And then maybe my last one. So Alan, I'm just curious in your internal meetings, are you hearing from any of your folks just any pressure or expected pressure on the transportation again? Sure. So, on transportation again? Sure. So we have added quite a bit of drivers and expanded our fleet quite a bit. And I think Mike might have commented that our outside transportation has continuously come down. And we've also been leveraging our rail. So we have a very large rail infrastructure that we own. And so we're expanding moving more of our waste products as well as other products on rail. I think next year, we will continue to internalize more transportation. I think we're talking about hiring at least another 100 national transportation drivers. So we don't feel the pressure on that because I think we are trying to do more and more to internalize that and control our own destiny. Yes. No, that's very helpful. Okay. Well, thanks guys. Thanks for the time. Okay. Our next question comes from the line of Jim Ricchiuti with Needham and Company. Please proceed with your question. Hi, good morning. A couple of questions. Just as it relates to the ES business, as you entered the quarter and then saw the way the business really played out. Any surprises in terms of either some of the end markets or geographies as it we saw we've seen PMI data improving. Just kind of curious from a macro level what you saw in the quarter maybe relative to your expectations going into it? Yes, Jim. I'll take a shot at this now and you can chime in if you need to. The I'd say across the board, it was better than we expected. We did talk about some softness in the Q2 call with kind of in the chemical space, in our incinerators and that was down. But overall, across the board, things were better than we expected. And I that's driven by macroeconomic factors and our performance in our end markets, along with the fact that the decon work came in better than we expected. And so all those things, when you look at kind of where we were 90 days ago and kind of where we are today, it's all these things are just a little bit better than what we expected and the cost saves kind of continued to kind of roll on through, which is and along with the government programs that we didn't really think we're going to get much in Q3. At the time, the Canadian government hadn't finalized a new wage subsidy program. Got it. And with respect to the pause on pricing, I'm wondering as you look out to next year, how should we think about some of this being layered in over the course of the year? I think it would be probably better to be conservative and not layer too much price increase in for next year only because until we get some more visibility here on COVID and see where things go with the vaccine. I think we're just going to be really cautious in how we handle the pricing with our customers at this point. I think just one other point, Mick, is that, I mean, we've had an unprecedented number of hurricanes and weather related shutdowns. Both our customers have experienced that. Quite frankly, we had as well a number of our facilities were impacted in the Gulf due to the hurricanes, somewhat helped us a little bit in regard to some of the refineries being taken off online or shutting down some refining capacity. So to some extent, it helped us a little bit on our oil side of our business. But on a net basis, I mean, we've seen a lot of customers suffer a lot of damage, and we've been shut down as well. Our Safety Kleen business particularly got impacted quite significantly. And we really didn't get a lot of response work out of that like we normally And probably just one other point I just want to highlight. When we did the bird flu back in 2015 timeframe, that was a $350,000,000 event for us here. So as much as we're appreciative of the work we're doing and it's really important work that we're doing for our customers, it's nowhere near the size and scale that we had when we were dealing with other pandemic issue here in the past. Got it. Thank you. Yes. Thanks, Jim. We have no further questions at this time. I would now like to turn the floor back over to Mr. McKim for closing comments. Okay, great. Thank you for joining us today. And we have participated in many virtual events in recent months and we'll continue that in the coming weeks, including the conference with Baird and BMO Capital, the New York Stock Exchange and Bank of America. So we look forward to connecting with many of you there. I hope that all of you and your families stay safe during the remainder of this pandemic. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.