Greetings, and welcome to the Clean Harbors, Inc. third quarter 2019 conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors, Inc. Please go ahead, sir.
Thank you, Kevin, 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, Michael 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, October 30th, 2019. 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. 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 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. Thank you for joining us today. Starting on Slide 3. Q3 was another strong quarter for us as we drove high-value waste streams into our network and achieved growth across many of our service businesses. It was our eighth consecutive quarter of profitable growth. We delivered nice revenue growth of 6% in the quarter and grew adjusted EBITDA by 11% on the strength of our business mix, pricing, and higher efficiencies. Environmental Services was the primary driver behind our strong performance, and Safety-Kleen contributed to our profitable growth. Turning to our segment results, beginning with Environmental Services on Slide 4, revenues were up 8% in Q3 due to growth in our volumes, particularly incineration, the mix of waste that we received, and the strong growth across multiple service businesses, such as field services.
Adjusted EBITDA increased 19%, which translated to a margin improvement of 180 basis points and put the segment above 20% for the second consecutive quarter. That level of margin and profitability reflects the mix in volumes we saw in the quarter, supported by ongoing efficiencies at our facilities. As I mentioned last quarter, we also continue to realize the benefits of the regional structure that we instituted in 2018. Incineration utilization came in at 92%, up considerably from a year ago. The plants ran well in the quarter, that helped limit our turnaround days, which we had expected to be low due to turnarounds that were shifted to the second quarter. Our average revenue per pound for incineration increased approximately 12% from a year ago, primarily as a result of the ongoing shift to higher-value waste streams, such as high halogenated compounds.
Landfill tonnage was up 6% as base business was steady and supported by several projects. We generated about $8 million in emergency response revenue, resulting from two on-water fuel spills and the cleanup of a wildlife reserve devastated by Hurricane Harvey. Moving to Slide 5. Safety-Kleen revenue was up 2% in Q3 due to the growth in the branches and pricing of our core services, which more than offset a lower spread in the Safety-Kleen oil due to base oil pricing. Adjusted EBITDA also grew 2%, with margin increasing 20 basis points. Pot washer services were up from a year ago. Waste oil collection volumes were strong at 63 million gallons, with a chargeable oil rate that was slightly higher than a year ago. Direct loop sales accounted for 8% of our total volumes, up from 6% a year ago.
Total blended product sales were 27%, up from 25% a year ago. Excuse me. Turning to our strategic update on Slide 6. As we conclude 2019, we remain on track for strong profitable full-year growth. In our disposal network, we are continuing to extend our pricing and mix improvements, as well as pursue project volume. Blended sales have fallen short of our targets this year, both in terms of our closed loop and our distributor sales. Our closed loop offering continues to grow, and although we have surpassed 30,000 unique customers, the pace is still below where we wanted it to be. We brought in some new leadership, are developing some additional plans to reinvigorate both our closed loop and distributor sales into 2020 and beyond. The Safety-Kleen team is closely monitoring IMO 2020 and opportunities to take advantage of the expected shifts the change will cause in market dynamics.
We've seen a few concrete changes in the market to date, but indications are that we should be able to gather more volumes of waste oil at favorable rates in future quarters. I know there's considerable Wall Street interest in PFAS and what it could mean to us, but it's currently hung up with competing legislation in Washington. Customer inquiries about our capabilities are climbing, but we don't expect any material effect until the gridlock in Congress on this issue is ironed out. One area I wanted to touch on briefly today is sustainability. Taking care of the environment and taking a sustainable approach to business is something that is central to our DNA here at Clean Harbors.
Whether it is recycling waste oil or solvents or paints or precious metals, our business model, since our founding, has always been constructed around reuse when possible or appropriate disposal when all value has been extracted. With the closed-loop offering in Safety-Kleen, we're pursuing maximum sustainability of the waste oil we collect. We're literally selling customers back their very own oil. Even within our disposal network, our destruction of CFCs is avoiding millions of metric tons of carbon dioxide emissions. Within our fleet, we've established four refurbishment shops that are extending the lives of our vehicles, and more than 80% of the parts we use are recycled. Within field services, we respond to approximately 6,000 emergency responses each year, where someone else has released harmful pollutants or chemicals into the environment.
Sustainability is truly a core component of our brand, and we are still in the early innings of telling our full story to customers, our partners, employees, and investors. It's something we are focused on as an organization and are making it a priority for 2020 and beyond. Turning to our capital allocation strategy on slide seven. We continue to execute on all four categories in 2019. We're on track for our net CapEx target this year, as we focus on internal capital on the highest levels of return. We've added two successful bolt-on acquisitions this year to support both segments of our business. We also recently divested a small non-core liquids hauling business in Western Canada, which is consistent with our strategy of pruning the portfolio in areas where we believe we are not the best natural owner.
We have also bought back a nominal amount of shares this year. We continue to evaluate additional repurchases along with repaying debt opportunistically based on timing and market conditions. In summary, we enter the fourth quarter of 2019 with strong momentum. We anticipate achieving solid profitable growth in Q4. While we see some small pockets of industry-specific weakness, the overall outlook for our markets remains very positive. We remain on track to deliver a record level of annual adjusted EBITDA and adjusted free cash flow in 2019. With that, let me turn it over to Mike Battles. Mike?
Thank you, Alan. Good morning, everyone. Turning to slide nine in our income statement. As Alan highlighted, we delivered good results across all our key metrics in Q3. We increased revenue by $48.5 million while growing adjusted EBITDA by $15.3 million, an incremental margin pull-through of more than 30%. This quarter, we saw good growth supported by higher pricing and operational efficiencies. From a gross margin perspective, we saw a 20-basis-point improvement in Q3 from a year ago due to better asset utilization, business mix, and pricing. SG&A expenses were up $1.1 million in absolute dollars, but improved 70 basis points in percentage terms. This improvement was driven by a series of cost-saving initiatives as well as efficiencies achieved through our Safety-Kleen customer care center, which we have invested in over the past two years.
Using the midpoint of our guidance range for the full year 2019, we now expect SG&A to be down in absolute dollars with an improvement on a percentage basis of 80-90 basis points versus 2018. Depreciation and amortization increased slightly to $73.8 million, which reflects assets we've added from tuck-in acquisitions and capital spending. For 2019, we now expect depreciation and amortization in the range of $295 million-$300 million, which is essentially flat with prior year. Income from operations increased 22% to $80.4 million, reflecting the combination of our revenue growth and improved margins. On a GAAP basis, EPS was $0.65 versus $0.55 a year ago. Our adjusted EPS was $0.72. Our effective GAAP tax rate was 32.8% in the quarter. On an adjusted basis, our tax rate for Q3 was 32.5%.
For the full year 2019, we anticipate that our tax rate on an adjusted basis will be in the 30%-31% range. Turning to the balance sheet on slide 10. Cash and short-term marketable securities at quarter end totaled $329.1 million, up nearly $70 million from the mid-year and in line with our expectations. DSO at quarter end was 74 days, consistent with the end of Q2, and a two-day improvement from year end. We expected a bit more progress this quarter, given the programs we have in place and initiatives underway. DSO remains a primary focus of our team. Our debt balance was $1.56 billion, down $10 million from year end. Our weighted average cost of debt today is 4.6%, down slightly from prior year. We feel good about our balance sheet as it stands today.
Using a trailing 12-month adjusted EBITDA and our current cash balance, we were 2.3 times levered at the end of Q3 on a net debt basis. Turning to slide 11. Cash from operations in Q3 was up 24% to $146.2 million. CapEx net of disposals was $54.6 million, up just $1.5 million from a year ago. Adjusted free cash flow was up 42% for the quarter at $91.6 million. This followed a strong Q2 and keeps us on track from an annual perspective. For 2019, we continue to expect net CapEx of $190 million-$210 million. Most likely, we'll be at or slightly above the midpoint of $200 million as we focus on investments around safety and operational efficiencies across our network. During the quarter, we repurchased 68,000 shares at an average price of $75.25 a share for a total of $5.1 million. Moving to guidance on Slide 12.
Based on our year-end performance and current market outlook, we raised the lower end of our 2019 adjusted EBITDA guidance by $10 million to a range of $530 million-$550 million. This represents a midpoint increase of $5 million from our prior range, and a new midpoint of $540 million would represent a year-over-year growth of 10%. Looking ahead, we continue to expect adjusted EBITDA in Q4 to grow in the mid to high single-digit range compared with Q4 of 2018. Here's our current full-year 2019 guidance translates from a segment perspective. In Environmental Services, we now expect adjusted EBITDA to increase in the low to mid-teens % in 2019. This growth will continue to be driven by higher value waste streams, performance in our facilities, projects, and increases in various service businesses across multiple regions. For Safety-Kleen, we now anticipate adjusted EBITDA growth in the low single digits.
We expect the year will be along the lines of what we saw this quarter, with profitability growth in the SK branches offsetting a year-over-year decline in Safety-Kleen Oil. In our corporate segment, we now expect negative adjusted EBITDA to grow by mid-single digits from 2018 due to increases in benefits as we continue to invest in our workforce. We are reiterating our adjusted free cash flow guidance and continue to expect to finish the year in the range of $200 million-$220 million. As Alan mentioned, we are increasing our focus on sustainability across many areas, including our workforce, where safety remains our top priority. The top 60 senior leaders in the company, along with the entire operational leadership, have safety as part of their incentive compensation to ensure that we keep our people safe.
We are also instituting a new corporate wellness program in 2020 to enhance the well-being of our people, our most important asset. In conclusion, Q3 was another strong quarter for Clean Harbors, led by our disposal network, combined with good contributions from all our regions in North America. Margin performance and cash flow generation were excellent in the quarter. Our near-term growth prospects continue to look promising, and we anticipate a solid conclusion to the year. We are aware of macroeconomic uncertainties that exist. We have not seen any meaningful slowdown in our core lines of business. We are maintaining a positive outlook, and we continue to see favorable trends within our key lines of business. As I'd like to reinforce each quarter, our goal remains to consistently report predictable results. With that, Kevin, please open up the call for questions.
Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing *1. One moment please while we pull for questions. Our first question today is coming from Noah Kaye from Oppenheimer. Your line is now live.
Thanks, good morning. Just a couple from me to start. You mentioned at the outset, Alan, the PFAS opportunity and gridlock in Washington being a gating factor there. It does look like there's been a couple of developments recently. We saw you're participating in a program with Washington State on incinerating firefighting foams. I guess the first question is just from a technical perspective, are all of your incinerators or the majority permitted to destroy PFAS substances? Have you proven to the regulators that incineration is fully effective as a disposal method? Would it require any CapEx into the plants to deal with PFAS? Just your thoughts there.
We do see it's still non-haz, right? We're still waiting to get some determinations from the feds and then ultimately how are the states going to administer the programs. We also know that we have a strong pipeline of opportunities. A lot of them are predominantly to deal with groundwater and in situ kind of treatment systems. We are essentially booked out with our treatment units, and we're looking at next year to invest a lot more in our treatment plants so that we could get more and more of those rental units out, not only to support our customers directly, but also to support a number of our partners that would like some of the technology that we have, particularly, again, on the groundwater.
I think it's too soon to tell from an incineration standpoint just which ones we would be earmarking as the regulations come forward here. Obviously the rotary kilns would be the most likely sites that we have, and we have several of our plants are the rotary kiln technology, which would be most appropriate.
Okay, from a permit perspective, there's no gating issue there?
Yeah, no. This is Jim. There are no permits yet because Alan said that it's still non-haz. Until the regulators come, no one has a permit.
Yeah.
I think we also saw that there may be waste streams coming into your Sarnia landfill, just as some landfills in the state of Michigan, for example, are refusing to take PFAS waste. Just any thoughts there on maybe understanding how the design standards and the operating requirements of your landfill maybe offer a bit more control over PFAS? Just understanding how that happened.
Our Sarnia landfill did go through a pretty exhaustive permit expansion that took about six years and was issued to us a couple of years ago. That gave us a lot more capacity and meeting a new design standard certainly was part of that. We also put in the thermal treatment unit there. We have an incinerator operating at that site as well, but it's liquids only, so that wouldn't be one that would be used for any solid contaminated material. That particular landfill has got some real unique capabilities to it with that permit expansion we have.
Mm-hmm. Okay. Just following up on your comments on IMO 2020, maybe kind of take us through a little bit your thought process right now. What impacts do you expect this to have on UMO demand? How likely is it that you'll be able to put through a price increase as we exit the year? Just your thoughts on how the overall environment is shaping up relative to your expectations and opportunities for pricing.
Yeah. I think what we've seen here is the used motor oil that wasn't being re-refined through companies like us was going into the utility market predominantly, and much of that market has dried up. A lot of the utility market now is being served with this much lower cost, high sulfur fuel oil, where they have the scrubbers, and they have the ability to take this material. Because of the significant discount that you're seeing now with high sulfur, heavy 6 oil, that is really what's been disrupting, I believe, the used motor oil market. The market is somewhat long right now, and we just recently did put out a price increase because of that.
We know that many collectors who are not in the re-refining side of the business are going to have some real difficulties getting rid of their oil because of the whole shift that's going on with the high sulfur market. We feel very good about our position in being able to service our customers, be able to handle more used motor oil. We're expanding our California facility right now and adding more VGO capability there. The VGO market is really strong right now, we're not going to be making any more base oil just yet. We are making and converting more used motor oil at that plant. I think we are feeling very good about the used motor oil side.
What we haven't seen yet is any of the impact of swinging some of the material over into the diesel side or the marine diesel side, which subsequently may have a positive impact on the base oil market. We haven't seen that yet.
Mm-hmm. Yeah.
Noah, one point I want to add to Alan's comments is that although we did do a price increase, and I think that as Alan said, we're seeing signs of life, there's not much of an impact in Q4. I think that it does take time to roll through the system, and so I'm not anticipating that being a big lift for Q4 per se.
Yeah.
Mike, you anticipated my question. Really this is a benefit to 2020. Is that right?
That's right.
Yeah.
That's right.
Okay, thanks. I'll turn it over.
Yep. Okay.
Thank you. Our next question is coming from Tyler Brown from Raymond James. Your line is now live.
Hey, good morning, guys.
Morning.
Hey, Tyler.
Hey, Alan. I just want to unpack the comments around seeing some industry-specific weakness on the macro front. I'm just curious what specific industries or end markets that you were talking about there?
I just think sort of broadly thinking about what you hear about transportation and manufacturing being a little bit soft.
Industrial production being down.
Yeah, industrial production was down. Quite frankly, not specific to a particular company or our customer base per se, that's just sort of the noise that we hear out there that there are some slowdowns. Maybe some of it had to do with the GM strike. We don't know how that might work its way back. We certainly saw a little bit of that in the blended oil market. There was some impact by that. It was just a reference that there has been comments particularly about those three particular areas that are important markets for us.
Sure. Okay. You kind of were quick to note that you do have a healthy backlog in the disposal network. Whenever you're talking about that, is that more on the incineration side or the backlog in the landfill project work?
Yeah, I think this was a good quarter for our landfills. We do have a big backlog. I think our deferred has grown quite a bit. That's sort of another sign that we've got a lot of material there. Mike, do you have a comment too?
Yeah, Tyler, it's over $11 million. Deferred revenue's gone up $11 million since year-end. I feel like Alan's comments are we're not immune to macroeconomic factors, but we see nothing today as we look at the near term, both our pipeline in Q4 and early 2020. We don't see anything yet, but again we know that we're not immune to it. That's kind of Alan's point, whether it be in manufacturing, whether it be in transportation, whether it be in utilities. I mean, that's just Some of these factors are impacting them, and I'm sure they'll impact us. We just don't see it today.
I think as we finish the year strong, as we go into our seasonally slower quarter, we've got a heavy backlog of material.
That's right.
We also have, I think, a very strong pipeline coming out of our sales organization for both projects as well as ongoing waste streams. I think we haven't yet seen any real impact yet, I guess what we're saying.
Okay. It feels that the backlog is good. You've got waste in the pipe, so to speak. The incineration pricing continues to have momentum. I think, and correct me if I'm wrong, you have fairly easy comps in the first half from some exogenous events. I guess my question is, why wouldn't ES maybe grow mid to high single digits next year, just outside of the macro really falling apart?
Tyler, we're going through our budget process kind of as we speak right now. Obviously we're excited about the progress we've made in 2018 and in 2019, and I'm hopeful that as when we get through that process and we can go and review that with our board and get their sign-off, we'll be able to come back and kind of give you some indication and some thoughts around 2020. That being said, as Alan said, that a lot of good indicators, and we come in with a strong backlog in a seasonally weak quarter. I'm optimistic, but I think that it's important that we kind of respect this process. We've been good at doing that, and I think we'll continue to do that.
Okay. I had to try. I appreciate that.
Yeah.
Just real quickly, sorry, a conceptual question, Alan, about Safety-Kleen. Am I right, is it about the 2/3 of the EBITDA is really housed in the branch business with maybe the other 1/3 kind of making money on the oil side? Is that conceptually right? I know that branch business is very sticky, but it's probably slow growing, whereas that other 1/3 of the EBITDA, the oil business, that's where you're going to see the influence from IMO and maybe closed loop. Is that the right way to think about it?
Yes.
Okay.
Yep.
Just want to make sure I had that. My last one here. Mike, I think this is the second or third EBITDA raise this year. Is your incentive comp accrual tracking over 100% here in 2019?
Tyler, it is the second, I think. I don't think we raised guidance in Q1.
Okay.
I think we did it in Q2, and we did it again this morning. I think that the challenge is that our accruals are obviously booked toward what the bonuses are every quarter. We true those up every quarter. We're very diligent. That being said, we have some very aggressive safety goals. Although we're doing better than last year, we're not kind of getting to those safety goals right now. As such, that accrual is probably a little lower than where it was last year.
Okay
As you can imagine, the base business is doing well. We're really close to budget. A lot of good bonuses are being accrued, just to be fair. Safety, although a great improvement from prior year, internally, we set tough expectations. We have high expectations for ourselves, we're falling a little short of that at the moment.
Okay. All right. I appreciate it. Thanks, guys.
No problem, Tyler.
Thank you. Our next question is coming from Michael Hoffman from Stifel. Your line is now live.
Thanks. Good morning, Alan, Mike, Jim.
Michael.
I want to knock something on the head on PFAS. Whatever you're going to do is going to be on remediation groundwater, you'll steer clear of drinking water. Drinking water is probably the bigger near term play, there's a long term trend potentially in remediation on PFAS.
Yes, exactly. We may support the larger E&C companies out there that need some of the technology and units that we have. Absolutely not. You're right.
Okay. Alan, you've been at this a long time. I give you credit for often seeing where the puck goes. Is this an asbestos or a PCB opportunity?
I think it's probably more of a PCB, but it's going to take the regulatory driver to make it that way. I think, obviously, that is the difficulty right now is to try to understand whether something will get done in Washington or not.
Your view is you need a Fed move, not just the states, because the states are in front of the Feds at this point.
Yeah.
You need the Feds to move. Yeah.
I think that's typically where the funding comes from and how the states can get more money and make sure that all the states are aligned. I think that's the best place.
That's where the money comes from, Al, normally, Michael, is from the Fed.
Yep. Okay. You've touched on the unbilled AR, so there is this positive trend that's been happening each quarter, and there's nothing to suggest that that trend's changing either when you try and correlate it to a macro.
Right. No, I think when we look at the real details behind our agings and where all the components of DSO are, our buckets of receivable are in pretty good shape. We just need to do a better job of getting our bills out the door a little bit faster, which has the most impact on DSO right now.
This is a tough question, the last cycle, Clean Harbors had some challenges being able to look forward and predict the business as it compressed. What have you done in the business model to improve the ability to predict it? There's a slowdown is inevitable.
Yeah.
Businesses have cycles. What have you done to improve that predictability this time?
I think our exposure in oil and gas is relatively small today. EBITDA is in the $15 million-$20 million range versus $150 million range. We have divested a number of businesses and sold off a lot of assets in that space as we saw that impact, particularly in Western Canada with the huge discount in crude oil and the reductions in the amount of plants that were being proposed and built. I think our exposure there is relatively low. I also think that we've put in place some, I think, very good tools to manage the spread in the business, particularly in the Safety-Kleen business.
When you think about the EBITDA that we got when we bought it in 2012, where we are going to end up this year, we essentially doubled the EBITDA of that business outside of maybe some corporate allocation that you could argue about. We still believe that there is good margin improvements that could be made in the Safety-Kleen business with other initiatives. We're sort of at that seventh inning, as compared to where I've spoken before. I do think that managing the spread is probably the thing that will help us as we hit maybe some type of downturn in the crude oil values. Let's say if it went down to $20 again, I think we're in a good position.
Okay. Lastly, on that, just to be clear, Mike, you came into the year thinking flat would be good from the SKO contribution to EBITDA. Maybe it's slightly down, but SKE was continuing to improve average branch revenues, good solid organic growth there, which is driving operating leverage. That's why it's up. That's still the right way to think about it, and then IMO helps next year, or if crude oil goes up higher, then base oil prices go up anyway. That's how to think about it?
Yeah, no, I think that's exactly how you'd look at it. I think that we had a tough start. As if you remember, with some of the flooding and frozen barges and so forth, we had a tough start to the year, and that kind of put a lot of pressure on the Safety-Kleen Oil business. I totally agree with you that the growth this year is coming from the branch network and better pricing and leveraging that business.
Right, because it's looking like it's mid-single digits or better, where SKO might be flat or down, and there's your low single digit blend.
There you go. Yes, sir.
Okay. Cool. All right. I just want to make sure I heard you correctly. You are biasing the free cash flow midpoint or higher. You didn't change the guidance there, but you're acknowledging the EBITDA trend would lead you to midpoint or higher.
Yeah, I think that, Michael, the challenge around cash flows, it's very difficult to predict down the stretch. Working capital is volatile as far as when we get paid and so forth, and what we owe and when we owe it. I think that we were hesitant to kind of raise, although we did raise EBITDA guidance and feel very good about that. I was hesitant to raise cash flow guidance just because there are a lot of ambiguities beyond my control that I want to make sure that I consistently exceed expectations.
Got it. Thank you very much. See you on Sunday.
Okay. Thanks, Michael.
Thank you. Our next question is coming from David Manthey from Baird. Your line is now live.
Yeah, thank you. Good morning, everyone.
Good morning, David.
Morning, David.
First off, I think you said you ended the third quarter in a charge-for-oil position. Did you say that you further raised those charges at the end of the quarter, just so I heard that right?
Yeah. Go ahead, Michael.
Yes. Yeah, David. We ended the quarter up a little bit, and we have put a price increase in place subsequent to quarter end, actually this month. Yeah, subsequent to the end of the quarter.
Okay. Upward bias there. HCC, when they reported, they sort of had an expectation of choppiness in UMO markets in the fourth quarter. I guess I contrast that. Alan, you sounded very confident that things were going to get better from here, and I'm just wondering what gives you that level of confidence relative to some of the ebbs and flows of the supply and demand in these markets as we move towards IMO 2020.
Well, just really the feedback that we are hearing from our team in the oil side of our business where purchasers of third party oil or swaps that are going on or traders that are trading in UMO basically shut it off from any further sales. We have seen some of the bigger trading firms say, "Look, the utility market is closed. We do not have an outlet. We have product really sitting stranded in some cases, and we are not going to be taking on any more." Now that is particularly on the two coasts. Obviously, the East Coast, West Coast are where you really see that, and maybe Heritage being in Indianapolis maybe does not get as much color around that as we see it. We are pulling oil from all over North America, and we get a good idea of sort of where inventory levels are and what outlets are at.
I feel pretty confident about it.
Okay. That sounds good. Further on pricing, beyond the charge for oil, you also gave us incinerator pricing. Were you able to achieve pricing in any of the other lines of business, the industrial environmental services, parts washing?
I would say on the industrial side, particularly after the Veolia acquisition, we have really done some deep dive in probably the top 30 or 40 contracts. In some cases, we have lost some of that business as we were more aggressive in our pricing strategies there to try to get more of a reasonable margin for some of the business that we acquired. I think overall, industrial will be down because of some of those initiatives. We also think that in other cases where we have sort of a nice bundled service approach to some of these customers where we're getting their waste streams, we're doing their industrial work, we're doing their emergency response work, we see some opportunities for price improvement in those scenarios. I would say just pricing in general in industrial has been a real focus of ours.
Okay. Sounds good. Thank you very much, guys.
Okay.
Thanks, David.
Thank you. Our next question is coming from James Ricchiuti from Needham & Company. Your line is now live.
Thanks. Good morning. Question on SG&A. You seem to be doing a nice job on that score, and I know you're early in the process in thinking about 2020, but I'm just wondering, is there anything you can say as it relates to SG&A expense as a percent of revenues going forward? Is there much more that you can get, do you think, from that area?
Yeah, Jim, we're not going to talk about 2020 as part of this process, but we didn't see anything unusual this year. The team is always trying to think about not just the quarter in front of us, but next year and the year after. Some of the moves we made in 2018 and 2017 of consolidating operations are starting to pay off this year, and there's no reason to think that we're not going to start thinking of some more creative ideas in 2020. Can it get better? I'm hopeful. I think that the team is always thinking about how to take out costs, how to consolidate locations, how to do things more efficiently, how to put better systems in place. All those things are to drive SG&A as a % of revenue.
All those things allow you to get that better leverage, and the team does an excellent job of doing that, led by Alan, and the whole organization focused on that exact point.
Got it. Just turning to the ES side of the business, you noted a couple of areas of pockets of weakness, but it sounds like what you're seeing is actually fairly healthy demand. I'm wondering, are there any parts of the market where you're seeing unusual strength or better momentum that you would've expected?
Mike, I'm not sure if you have anything that comes to mind. We've grown, the chemical industry is really strong for us right now.
Yeah. That's what I'd say, Jim, is that the chemical investment that's being made, especially in the Midwest and in the Gulf, continues to pay dividends for us. We have the network, we have the teams in place there. That has been a winner for us for a year or two. I think that will continue to be a winner for us prospectively. I just think that that type of investment that's being made, $billions and $billions being invested in the region, and the low price of natural gas, and the availability of labor, I think has really been helpful for us, and that sees no sign of slowing down, in my opinion.
Then final question from me. I'm just wondering if you could elaborate at all on just where you are in terms of reinvigorating the sales on the closed loop side. Sounds like you've made some changes, and I'm wondering what we might anticipate near term from some of the internal changes you've been making.
I'll start, and Alan, feel free to jump in there. We are up over 40% in the direct loop year-over-year. That's not our own internal, we have higher expectations for that. We've made a lot of investments in people and processes. We're hopeful that there's further progress. I think just taking a step back and looking at it from here, 30,000 customers, good stick rate, good growth every month. The team is really excited about it. I'm hopeful that continues to grow. Is that going to be a needle mover in 2020? I hope so. I'm not sure it will or not. The team is very excited, and I'm very excited about the growth that they've made. Not as fast as we wanted it to do.
A lot of things we had to work through, but I think the team is really excited about the prospects going forward.
Yeah. Certainly, customers are adapting to our products, and they like the value proposition that we're offering them. We're seeing, as Mike said, good repetitive sales with over 30,000 customers. As long as our team continues to drive those kind of subscriptions where we're just building more and more of our customer base, we're going to continue to see a nice steady growth in that business.
Last point on this one, Jim, is I think that the sustainability angle that it hasn't been a focus of ours, it hasn't been a focus of our customers over the past couple of years, is starting really to take hold and take root. This is all recycled oil. It's at a higher quality than from crude, and we're really excited about the prospects over the long haul. Again, it takes longer to change attitudes, and so I think that those attitudes are starting to change.
Got it. Thanks very much.
Thank you. Our next question is coming from Larry Solow from CJS Securities. Your line is now live.
Great. Thanks. Good morning, guys.
Good morning, Larry.
Just a couple of quick follow-ups. Just back on the pricing on the incinerator side. Clearly, you guys have done an excellent job, and you focus much more on the high-value waste streams, and you've gotten El Dorado performance really improved a lot. I think you had an easier comp, too, as you go back a couple of years ago, and you've built on that this year. Going forward, maybe not double-digit increases, but is there still room for a sort of mid-single digit or even higher increases and maybe that can offset some flattening of volume in some pockets that you spoke of?
Well, I think we just went through a sort of a 3-5 year strategic plan. When we look at debottlenecking and opportunities to continue to expand our incineration capabilities and adding more processing, whether it be drum shredding to be able to process more drums faster or ash handling capabilities and other kind of technologies, we see real opportunity to continue to get more tonnage through the plants. Clearly, we have a high demand situation right now, and we think that's going to continue to grow because of the whole renaissance of the chemical industry here in the U.S. The low price of natural gas is really, we believe, what's brought back a lot of major chemical companies here. I think that's how we think about the incineration business, Larry, right now.
Okay. On the mix, specifically, you mentioned you continue to shift towards more high halogenated compounds. El Dorado, is there still room for improvement there, or is it now sort of handling the, what you call the nastiest of the nastiest waste?
Well, that brand-new plant there, as you know, was designed to handle those more difficult type streams. We've continued to ramp that plant up. We're still not where we want to be with the throughput of that facility, but the team has really made some great progress since its initial startup there. We do have some additional investments being made in El Dorado, which we hope will allow us to take even more of those materials through the plant. Because it's not just getting the material into the incinerator, but it's actually getting the material prepared and able to be efficiently incinerated within the plant. A lot of the preparation side of our incineration business, we can add a lot more value to.
Okay. Just switching gears on Safety-Kleen, on the closed loop. Obviously, it's grown rapidly, as you said, but from pretty small numbers. You talk about a little bit of internal reallocation of investment and whatnot. Potentially, do you still think maybe there's some external opportunities you might be able to make to sort of kickstart it a little bit more?
I think so. It's about a 2.3 billion gallon market, and we're just a tiny fraction of that, as you know.
Right.
To get to where we want to get our base oil, blended oil split, which is sort of shifting it from 70-30 to sort of 30-70 blended now. The market's there. We've been adding people. We've been bringing on more experienced folks to manage that business. We have a new leader in Craig Linningto n, who's running our Safety-Kleen Oil business, who came over from Shell and Jiffy Lube. He's got a lot of great experience. We have high expectations that we're building the right team now to accelerate the kind of growth that we see in what is a 2 billion gallon market.
Right. Then just lastly, on the fine-tuned organizational structure, which you've mentioned the last couple of calls. Sounds like you're certainly starting to reap some of that benefit. Do you see that sort of, are we in the early innings of that? Sometimes these things take a while to really bear fruit. Perhaps, that you'll benefit that for the next several years going forward.
I think as we look at the regional structure that we put in place 18 months ago or so, the team has really done a nice job of tying in our field, our tech, our industrial, and now even getting Safety-Kleen closer together with that new regional structure is something that we're really working on to kind of build more of a single platform so that even though we'll continue to have Clean Harbors and Safety-Kleen as our brands, we know that from a service delivery, we can work closer together to service each other's customers. Particularly as we have grown in areas like our retail business, where there's the tremendous opportunity to leverage each other's service capabilities. I would say we're in our early innings there as it relates to the Clean Harbors, Safety-Kleen network out there.
Okay. Just one last question, if I may. You mentioned, you recently, I think you said internally, you guys discussed a three to five year outlook. I know looking back, maybe 10 years ago, something you had put out a longer term outlook, that was when your company was somewhat different and somewhat more oil focused. You haven't put out that longer term number. Any thoughts going out over the next six to 12 months where you might discuss a little bit more of longer term nature and what you think the business can do?
Yeah, why not, Larry? I think we certainly should think about doing that and sharing sort of our long-term vision with you and the street. Let's think about that and get back with the team.
Awesome. Thank you. I appreciate it, guys.
Yes. Thanks, Larry.
Thanks, Larry.
Thank you. As a reminder, ladies and gentlemen, that is star one if you would like to be placed into question queue. Our next question is coming from Jeff Silber from BMO Capital Markets. Your line is now live.
Thank you so much. Just a couple of quick follow-up questions. When you were discussing the Environmental Services segment, you talked about some major ER events that contributed, I think, about $8 million in the quarter.
Are those all gone? Are we going to see some kind of roll-off into the fourth quarter as well from that?
Probably the one major one is still ongoing. We continue to work on a pretty large event down in the Southeast, a water event. I would say that particular one. I think the wildlife reserve is still going as well. I think a couple of those were still ongoing here in the fourth quarter.
Jeff, pretty small, but yeah. There'll be some rollover effect.
Yeah.
Smaller than the $8 million you saw in the third quarter?
I believe so, yes.
Yeah.
Yeah, it's always difficult, and there could be others that could come on.
Yeah.
It's just very hard to predict those natural events.
That's fair enough. In your prepared remarks, you talked about adjusted EBITDA guidance by segment. Forgive me, I kind of cut out here. Was that for the fourth quarter, or was that for the year as a whole?
Jeff, what we do is we always give guidance for the full year by segment, and we adjust that accordingly as the business has changed. That would be.
Right.
You can just do the nine months and back into it.
Got it. Okay. Thanks so much.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
Okay, thanks, Kevin. Thanks for joining us today. We're participating at the Stifel-