Earnings Call: Q4 2018

Feb 27, 2019

Greetings. Welcome to Clean Harbors 4th Quarter 2018 Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. Please note this conference is being recorded. I'd now like to turn the conference over to Michael McDonald, General Counsel for Clean Harbors. Thank you, Mr. McDonald. You may now begin. Thank you, Rob, 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 27, 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. In addition, today's discussion will include references to non GAAP measures. Chalmers 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. Thank you for joining us. Starting on Slide 3, we concluded 2018 with a strong performance that enabled us to exceed our guidance. Both our segments delivered profitable growth in the quarter. Environmental Services achieved better than expected results from a combination of higher margin waste streams, pricing gains, and a solid contribution from Industrial Services, which includes the Veolia acquisition. As was the case throughout 2018, adjusted EBITDA outpaced revenue growth in Q4, resulting in a 60 basis point margin improvement. Our full year results were also strong. Credit for that goes to our entire team, which consistently drove profitable growth and did so safely all year. I'm extremely proud to report that 2018 was the best safety year in Clean Harbor's history with our TRIR and other key metrics at record lows. Nothing is more important to our leadership team than ensuring that each employee goes home uninjured every day. Financially, our revenues grew 12% and adjusted EBITDA increased 15%, while our adjusted free cash flow for the year was a record $195,300,000 Turning to Environmental Services on Slide 4. Our top line grew nearly $100,000,000 in the quarter with Veolia accounting for about $45,000,000 of that amount. The remainder was driven by organic growth. Adjusted EBITDA in the segment was up 35% with a 2 10 basis point margin improvement. Incinerator utilization came in at 86% in Q4. Our average price per pound grew by 17% year over year as we continue to focus on gathering more high value waste streams and optimizing our mix. With the addition of our El Dorado incinerator, we're drawing more waste streams from the ongoing expansion in the chemical sector and regularly setting new records for drum volumes coming from both Safety Kleen and our legacy Clean Harbors business. For the full year, our El Dorado location ran at 95% utilization, up from 85% a year ago, demonstrating how well the new plant is running in year 2 of its operation. Landfill tonnage in the quarter was down 6% from a year ago as a result of the timing of some projects. However, our average price per ton was up 18% due to our focus on bringing in more high value waste streams and greater base work. For the full year, landfill volumes were up slightly from 2017. We also generated profitable growth in Q4 within our TSDF network, our wastewater treatment plants, and our other recycling centers. Moving to Slide 5, Safety Kleen grew revenue 6% in Q4 due to higher production volumes, our closed loop initiative and pricing and growth within the branch network's core lines of business. Potts washer revenues were up slightly in the quarter due to pricing, while waste oil collection volumes were 56,000,000 gallons, giving us a record of 234,000,000 gallons collected in 2018. Similar to the past several quarters, our re refineries ran well with production levels above a year ago. Safety Kleen's adjusted EBITDA increased 1% due to pricing in its core branch offerings, which offset the short term spread compression we experienced when base oil prices declined during the quarter. The Safety Kleen team did a great job throughout 2018 capitalizing on positive pricing trends as well as managing the spread between our used motor oil and base oil. In terms of the sales mix, direct lube sales accounted for 6% of Safety Kleen's total volumes sold, similar to the past 2 quarters and up from 4% a year ago. Total blended product sales were 22% compared to 23% a year ago. And as we move into 2019, our focus is on increasing blended sales through not only our direct sales, loop sales, but growing volumes with our key distributors. After selling less than 40,000,000 gallons of total blended products in 2018, we aim to expand that to 50,000,000 gallons in 2019 with about half of the increase coming from our closed loop and the remainder from distributors. I want to take a moment to highlight the increasingly complementary relationship between our Safety Kleen and our Environmental Service segment. Since acquiring Safety Kleen, we've grown adjusted EBITDA in that business by 112,000,000 percent. More importantly, adjusted EBITDA margins has increased 900 basis points from 15.3% in 2013 to 24.3% in 2018. During the same period, we've also made considerable progress integrating Safety Kleen with our legacy business. Last year, Safety Kleen gathered a record level of drums for our disposal network. Our environmental service, on the other hand, generated $100,000,000 of revenue from Safety Kleen's customers within its total project management business. And we've also now co located 35 legacy Clean Harbors locations within the existing Safety Kleen branch network. The alignment between our segments continues to strengthen and our results underscore the financial benefits that we can achieve together. Here on Slide 6, we wanted to share with you a quick snapshot of the top 10 verticals that we serve. And as you can see from the chart, manufacturing and chemical are our largest verticals, and those two industries accounted for nearly a third of our revenues last year. After that, we were well diversified across a variety of markets that we serve. I should point out that upstream oil and gas has become a considerably smaller part of our revenue base in recent years and today only represents about 4% of our total sales. Moving to our corporate update on Slide 7, a high quality workforce is integral to our strategy to ensure we're operating efficiently as possible while servicing our customers' needs. In 2018, we invested an additional $30,000,000 into our people in the form of higher average wages, greater incentive compensation, the reinstatement of our 401 match program and other expanded benefits. Our investments in our people will continue to increase in 2019 as we more than double our 401 contribution and absorb all healthcare cost increases. And we're also pursuing a broad array of cost savings initiatives again this year that we believe will offset these workforce investments. Profitable growth remains the focus for us in 2019. We took a significant step forward in 2018, but there's more we can do to extend our momentum and improve our margins. We saw early success from the strategic realignment of our sales and service organization within our environmental service segment at the beginning of 2018. This structure should generate growth for us again this year, expanding cross selling opportunities and enabling more efficient sharing of people and assets going forward. With the impending changes expected from IMO 2020 regulations, we continue to review every contract and sale on a short term basis, really to look for opportunities to capitalize on market conditions. Turning to our capital allocation strategy on Slide 8. In 2018, we executed on all four elements of our capital allocation strategy. We invested nearly $180,000,000 in net CapEx in the business. We acquired Veolia's Industrial Business and Syn Environmental for approximately $150,000,000 in total. We brought back more than 400 excuse me, more than $45,000,000 worth of our shares, and we also reduced our debt obligation by more than $55,000,000 Based on the timing and market conditions, we plan to be opportunistic across all four categories again in 2019. So in summary, the underlying dynamics of our business are real positive and we anticipate a strong 2019. So with that, let me turn it over to Mike Battles. Mike? Thank you, Alan, and good morning, everyone. Turning to Slide 10 and our income statement, we closed out a strong 2018 with excellent profitable growth in Q4. We increased revenue by more than $110,000,000 from the prior year. For the year, we grew more than $355,000,000 or 12%, with the majority coming from organic growth. 120 basis point improvement in gross margin in Q4 reflect the mix of fitness in the quarter, the impact of our pricing initiatives and a favorable comp with a year ago when some of our customers and locations were still being affected by the remnants of the hurricane season. On a full year basis, we saw a slight increase in gross margin. That number would have been much higher, except for the addition of Veolia, which generates gross margins lower than our company average. Q4 SG and A expenses were up on both an absolute dollar basis and on a percentage basis, primarily reflecting the increase of incentive compensation given the outstanding results that the team delivered. On a full year basis, SG and A expenses as a percentage of revenue improved by 20 basis points. This result was driven by higher revenue, improved leverage from our new regional structure and the ongoing integration of Veolia into our existing SG and SG and A structure. For 2019, using the midpoint of our guidance range, we would expect our SG and A to be slightly down in absolute dollars. Depreciation and amortization for the full year was up a little over $10,000,000 due to the addition of the Veolia assets. For 2019, we expect depreciation and amortization to decrease to a range of $285,000,000 to 295,000,000 dollars as some existing assets become fully depreciated. Income from operations for the quarter increased 49% to $41,500,000 reflecting higher revenue and operating margin. For the full year, that increase was 43% to $182,600,000 Higher margin waste streams, pricing improvements in multiple businesses and a solid contribution from Veolia drove a 20% increase in adjusted EBITDA for the quarter. Looking at the full year, our adjusted EBITDA grew 15%. On a GAAP basis, EPS was $0.29 per diluted share versus $1.48 a year ago when we had a large benefit through the changes in corporate tax law. On an adjusted basis, our EPS was $0.24 compared with a loss of $0.06 a year ago. For the full year, our adjusted EPS was 1 point $0.20 for 2017. Our full year tax rate in 2018 was 30.5%. Looking at 2019, we would anticipate that our effective tax rate on an adjusted basis to be in the 28% to 31% range. Turning to the balance sheet on Slide 11. Cash and short term marketable securities totaled $279,400,000 at year up more than $26,000,000 from Q3. Our DSO calculation came in at 76 days, 4 days higher than a year ago, but that is directly related to the addition of Veolia. The team actually did a nice job on collections down the stretch, and in combination with our working capital management, we were able to generate strong free cash flows. Our long term debt balance declined to $1,570,000,000 as we elected to repay the $50,000,000 that we had drawn on our revolver when we refinanced our 2020 senior notes back in June. Given our cash on hand and the current loan environment, we thought it was prudent to delever a bit at this time. Ultimately, we can redraw on that revolver at a later date if needed. Overall, we believe our balance sheet is very strong. Our weighted average cost of debt is about 4.7%. We ended 2018 with a net debt to EBITDA ratio of 2.6x. And if we use the midpoint of our 2019 guidance with today's net debt balance, it would take us below 2.5x. Turning to our cash flows on Slide 12. Cash from operations was 126,000,000 dollars in Q4, nearly double a year ago. CapEx, net of disposals, was $33,300,000 Included in that number were net proceeds of $7,400,000 related to the sale of assets associated with our lodging manufacturing operation in Western Canada. This divestiture is consistent with our strategy of exiting non core businesses and selling off non core assets. The combination of our strong cash from operations and lower net CapEx spend led to an impressive 92 point $7,000,000 of adjusted free cash flow for the quarter. For the full year, we delivered a higher than expected 195,300,000 dollars As Alan mentioned, that's a record for the company and is reflective of our ability to deliver strong cash conversion as we continue to probably grow the business and control capital spending. For the full year, our net CapEx came in at 177,900,000 dollars which is right in line with our CapEx guidance. For 2019, we currently expect net CapEx in the $190,000,000 to 210,000,000 dollars range. The midpoint of that range is up about 12% from 2018 as a result of growth in our business, the timing of landfill cell construction and some incremental capital investments to enhance our re refinery capacity. During the quarter, we repurchased $11,500,000 of stock. For the full year, we bought back approximately 814,000 shares at an average cost of just over $55 per share. We have bought back close to 5,600,000 shares at an average price of just under $53 since the program began a few years ago. We remain committed to returning capital to our shareholders through our repurchase program. Moving to guidance on Slide 13. Based on our 2018 results and current market conditions, we expect 2019 adjusted EBITDA the range of $500,000,000 to $540,000,000 The midpoint of that range represents a 6% increase from 2018 and the top end of the range equates to 10% growth. Looking at our guidance from a quarterly perspective, we expect normal seasonality during 2019 with the back half of the year being slightly higher than the first half and Q1 remaining our weakest quarter. That said, we expect Q1 adjusted EBITDA this year to be up about 10% year over year due to growth in the business, continued better pricing and a favorable comp in the prior year. Here's how our current full year 2019 guidance translates from a segment perspective. In Environmental Services, we expect adjusted EBITDA to increase in the mid to high single digit range in 2019. This growth will again be driven by pricing, higher value waste streams and margin improvement in this segment. For Safety Kleen, we anticipate adjusted EBITDA growth in the low single digit range due to the continued effective spread management, increased production volumes in our plants and growth in key lines of business in our branch network, including direct lube sales. In our Corporate segment, negative adjusted EBITDA should be flat to slightly higher in 2018 as increases in areas like healthcare and benefits, including 401 are mostly offset by cost saving initiatives. Based on our current guidance and working capital assumptions, we expect 2019 adjusted free cash flow in the range of $190,000,000 to $220,000,000 as incremental EBITDA is partially offset by higher CapEx. In summary, 2018 was an outstanding year as we met or exceeded our guidance in all four quarters. Our goal is to consistently deliver on our promises. Overall, we expect another year of profitable growth in 2019. With that, Rob, please open up the call for questions. Thank you. Good morning, everyone. Good morning. Hey, Luke. Hey, first question I had just in terms of the first quarter EBITDA up 10%. Just wondering if there's any seasonal impacts we should be aware of in the quarter. Obviously, I know it's your lowest quarter seasonally, but anything we should be aware of in terms of shutdowns bit down for a bit because of the polar vortex that kind of affected that part of the country. But outside of that, Luke, there's not a lot. That's not a big number per se. Okay. That's helpful. And then in terms of Safety Kleen, Mike, you'd recently made some references to your spread management system at Safety Kleen. Specifically, how much they've improved over the last few years? Can you speak to some of those changes more specifically and maybe give us some updated guardrails as well in that area? Yes, sure. So the system that we're talking about was put in place a year or 2 ago, and I think it continues to do very well. And you kind of saw it in the results here in Q4. I mean, although oil prices kind of collapsed in November December, the SK team continued to drive kind of profitable growth and still, for the 10th consecutive quarter had a year over year growth in their EBITDA. So I'm really pleased with the team and how they did down the stretch of managing their input costs as well as managing the output costs. And so that system continues to do well and I'm hopeful that regardless of how oil prices go in 2019, we'll be able to manage that spread and drive profitable growth. And then if I could just sneak one more in. Alan, just the outlook for incinerator pricing in 2019, obviously, a steady economic backdrop, good utilization, high barriers to entry in that business, of course. It seems like a good backdrop to take price. We had a number of pricing initiatives across the business last year, and we would expect the benefit of those increases to flow through here in 2019. So you will see an improvement in pricing on incineration this year for that reason for sure. Perfect. I think more importantly will be the mix. The team really has been able to line out that new plant and we've been able to really increase our feed rates and the type of waste, the high value feeds into the plant. And that's really come online at a really opportune time for us because we've got a number of key customers that have been expanding and generating those kind of high cost, difficult streams to treat. So the team's really done a nice job getting that plant up online. Okay, perfect. I will leave it there. Thank you so much. Okay. Thanks, Luke. The next question is from the line of Hamzah Mazari with Macquarie. Please proceed with your questions. Hey, good morning. My question is on pricing as well. How much of the pricing ramp, Alan, is just sort of a catch up because you sort of didn't price earlier? I'm just thinking about long term pricing in your business. Is the pricing ramp in 2019 much higher and then we go to sort of a CPI based pricing? Just any thoughts on sort of pricing? I know you've been strategic around that and I know we've had capacity ramp and you had to fill volume. Any thoughts on pricing longer term? Well, we certainly have been doing a little bit of catch up as you know because there were a reluctancy on us raising pricing as we were bringing on new capacity, but at the same time, more waste is entering the market. We're seeing more captives looking to outsource more material direct to our facilities. And with some of the consolidation that took place within the chemical industry, there are a number of facilities right now that are beginning to outsource waste that otherwise may have internalized those materials. So all in all, I think we're pleased with our utilization rates. We have been doing a little catch up as you mentioned. We have increased pricing and quite frankly as we've approached a lot of our large key customers, I think many of them appreciate the fact that we've made a substantial investment into these plants to increase more capacity and also to meet the new regulation. And I know you touched on the synergies between Safety Kleen and Environmental, and obviously it's been a number of years since we did that deal. But any thoughts as you look at M and A longer term? I know we got involved in energy after the BP oil spill and sort of you're in these sort of 2 segments, but there's a number of different verticals in those two segments. As we think about M and A longer term as leverage comes off, is the portfolio going to remain sort of similar or are you looking at other avenues that sort of you're not in right now? Just sort of thoughts on longer term M and A. Yes. I think there are a lot of opportunities in the two segments that we're in today. We see a lot of deal flow through our M and A group here and we continue to look at opportunities, but we're trying to be optimistic as well. We're somewhat competing with a number of PE firms out there that in some cases pay a much higher multiple than they're willing to pay. So we only did a couple of deals last year. I think they worked out extremely well for us. We continue to see opportunities though to grow just in the 2 segments quite frankly Hamzah that we're in right now. Got it. Last question, I'll turn it over. Just the IMO 2020, could you remind us, is that all hype or do you think that really generates EBITDA in your business? Thank you. Certainly, we're watching that very closely and we think there are going to be some impacts on both outlets for oils that are being collected today that is not being re refined. So we think there could be impacts to the outlets for them. We also think there's going to be changes to the pricing on marine diesel oil and fuel oil and subsequently potential positive implications on base oil pricing. So we think on both the collection side as well as on the sales side, IMO 2020 could have an impact on us. But I think only time will tell to kind of see just how it all shakes out Hamzah. Great. Thanks so much. Yes. The next question is coming from the line of Michael Hoffman with Stifel. Close the loop on IMO 2020, it's not in your guidance. That's the more important point. That's true, Michael. Yes. Okay. So it's all upside, whatever happens, whether it has a benefit or not. And you don't have to spend any capital to benefit from it. It's you basically are in the right place at the right time. Yes. As I mentioned in my prepared remarks, we are going to spend a couple of $1,000,000 of probably incremental capital in our re refiners run them a little more efficiently, but other than that, nothing to your point. Yes. But you don't have to spend money for IMO 2020. That's just a business decision about Fair enough. Right. Okay. In 2018, you enjoyed a recovery in refining turnarounds as a service provider. And at the time, we chatted about it having been a prolonged lengthening of the cycle that it looked like we were back to some normal level of maintenance cycling again. How do you frame 2019 in the context of good 2018 in refining is 2019 setting up to be, it looks like we're doing maintenance again? I think Western Canada had a really good year on turnaround, both our in the specialty side as well as our base industrial cleaning business. So they will have a much slower year this year because of the schedule. The U. S. Should be stronger this year, although I think probably not significantly more than what we saw last year. So I think on a net basis, we're probably flat, Michael, for right now. But would you say that we're back into a cycle again, where it looked like you couldn't predict it for the prior 5 years? Yes, I definitely think it's much more of a cycle, and we are looking at the book out there of the turnarounds and the schedules and we are hiring, we are ramping up obviously staffing to deal with the demand that we have. So I would say yes, it's probably more consistent. And I think the pricing of oil being in this high 50 range certainly helps that we're not seeing a lot of customers all of a sudden shut off maintenance or CapEx like they were doing in the past years? Yes. I would say, Michael, that cycle, to your point, yes, I think that we are. But I don't think there's a big catch up per se. I think we're just back on a normal cycle. And I think 2019, as Alan said, 2018 in Western Canada was awesome. And I don't think that repeats itself, but I think the U. S. Grows a bit, and I think net net, we're probably flat. Yes. And that's what I was trying to get to is we've now found a pattern again, whether we didn't seem to have a pattern for a while as they change the cycle times. That's fair. Yes. Okay. And then you used to talk about in the incineration world of $0.50 a pound, sort of your middle of the road pricing. And then you added El Dorado and it clearly would dampen it, as you loaded it and then walk the ASP up. How would you frame where you are in the aggregate to that $0.50 a pound? Yes, it's a good question. I guess Jim, you have a comment? Yes. Michael, we're kind of back to where we were because throwing the 70,000 tons of capacity in and having to fill that up, we obviously diluted the price. And with the large increase we're reporting in the past several quarters, we put the average price back up. I'm not sure that $0.50 a pound, unless you're excluding our Canadian incinerator, which is liquids only that dilutes that price. But in the U. S. Network, that's approximately where we are. Right. And so to the point of pricing, anything from here now is more likely real price as opposed to ASP and mix because you now get the benefit from better volumes. Right. And to Hamzah's point about asking about year over year, yes, we had a bit of favorable comp last year obviously with running so much low price material through. So if you say we're back to kind of level set here with 70,000 more tons, then everything from here forward is moving up. Incremental. Yes. Right, right. Which is the point I was trying to make. And then lastly, we can as market observers see posted oil based oil prices. And so we understand what's happening on that end of your spread. And we have no idea what's happening on the front end. But I have to believe you didn't sit idly when oil was coming down. So could you share at least what you did in the Q4 on an incremental basis for charge for oil, so the market understands how quickly you were able to respond? Yes. So Michael, this is Mike. So yes, it was about 0, about flat, maybe down rounded down to a penny. But as we look here into 2019, it's been up a bit here in January. So yes, we did drop we did raise our pricing down. It pushed out the price, but when the price went down on December 1, but at the end of the day, we've kind of recovered that. So probably in a charge for oil. We are definitely in charge for oil right now, absolutely. So 2019 is a chart and can you share any assumption about, well, I guess really what you're saying is you're going to manage the spread regardless and therefore that's why we can look at a 1% to 2% EBITDA growth despite base oil down? That's right. Exactly right. Okay. And then last please go ahead. Sorry, last tie in, just to close the loop on it. I'm assuming you haven't built any seasonality. You've taken the base oil where it is at the moment, and if that's what life is, manage the spread. And if we get a normal seasonal supply demand push, then that's upside as well. Yes, sir. Great. Thanks. Nice quarter. Thank you. Thanks, Michael. The next question is coming from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question. Thanks so much. In your commentary around Safety Kleen, you talked about your goals to increasing the blending products component in 2019. Can we get a little bit more color how you're going to get there and what you think the impact might be on segment margins? Sure. We established about 15 bulk distribution facilities within our existing network, and we have been, in our supply chain organization been expanding the quantities and the types of products really across the network, not only in those bulk facilities, but through our distributors as well as our packaged materials across our distribution centers. So as 2018 continue to roll out and we ran our sales initiatives, we realized that there was a lot more opportunity for us to continue to grow that. We've kind of, I would say, made a case that customers really are willing to buy our oil. They like the product we have. They like the delivery methods that we're making here to pick up their waste and deliver oil at the same time. So I think we're just going to continue now to execute on that plan. Would have gone faster than the way we ended up for the year. We were a little bit short from where our internal targets were, but all in all, I think we grew at about 60%, 70%. So that was good news for us. And I'm sorry, the potential impact on margins if you get there? Well, I think when just at a very high level, we've always thought there's probably a dollar a gallon kind of margin uplift as we sell more blended oil than if we are in the kind of commodity based oil business. So that's always been sort of our thinking at a very high level. Okay, that's fair. And Mike, forgive me, in your comments, did you say that you sold the lodging business in Canada? Are you completely out of that business now? No, Jeff. We sold the lodging manufacturing operation. We had a small manufacturing operation south of Edmonton, and we sold that building and the land to a third party for about US7.5 million dollars Okay, great. Thank you so much for clarifying that. I appreciate it. Thank you. The next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your questions. Good morning, gentlemen. Thanks for taking the questions. Yes, so again, to come back to price, I mean, pretty notable mix improvement, obviously, in the S in 2018. So it looks like there's a little over $20,000,000 of EBITDA growth, at kind of the midpoint of your guidance for 'nineteen. And really how much of that is price? I mean is this basically all price driven? Can you talk about your assumptions for price versus volume? So, Noah, I'll take it. And so when you think about the growth in 2018, certainly prices, as Alan and others have said, was a good driver of that. I would say the predominance of the growth in revenue was mix, as Alan tried to say, where kind of higher margin waste streams, higher chlorinated waste streams that are difficult to dispose of really kind of came into the network and that's due to our growth in the chemical and the manufacturing space. So that really drove the incremental revenue and the incremental margin improvement. As you look to 2019, I think that just keeps going. I think that some of the contracts we have continue and these types of waste streams continue into 2019. So when I think of the midpoint of we ended at $491,000,000 and the midpoint of our guidance is $520,000,000 I think a lot of that is really a mix issue as much as a price issue. Price is up, no doubt about it, catching up from 20 17 and really our costs are going up and we've been able to constructively have constructive conversations with our customers about increasing price. But if you look at the overall growth, it really is a mixed story and that continues 2019, which I think is actually a much more positive story, frankly. So I think that really talks about kind of what's happening in the United States from a chemical renaissance, which we've talked about quite a bit, whether our current customers are doing more or new customers are coming online, it's really been a it really was a great finish to a great year. And I but I think the story is a mixed story as much as a price story. That's very helpful. Thanks, Mike. Kind of switching gears, how should we think about working capital impacts for the free cash flow guide for 2019? It looks like you got a nice benefit to 4Q around the payable side. You talked about maybe still an opportunity to decrease DSOs. What should we expect for working capital impact? Yes, I'd say working capital is neutral. Maybe it grows a bit as the business grows, but we're not anticipating us in my guidance, I'm not anticipating DSO dropping dramatically. We'll continue to work it. We have plans to do that, but I don't think that it's going to be a I really don't think it's going to be a we're not planning on a big DSO decrease. Yes. I would just point out that from our perspective, underlying free cash flow growth in the guide is higher. You did a really nice job to your credit from 4Q on the working capital side. Let me just ask one slightly different question to finish off here. I think we've seen data from EPA that something like 1.3% of all public water systems have detections of PFAS that are at or above the nation's health advisory level. And recently we've seen EPA saying they're going to propose a regulatory determination by the end of 2019. Alan, I think last quarter you estimated $25,000,000 to $30,000,000 revenue in 2018 from the PFAS cleanup. So really kind of a 3 part question. Where did you end up in 2018 revenues? What have you projected for 2019? And how large do you think the TAM becomes if the EPA ultimately sets a rigorous drinking water contamination standard? Yes, it probably came in closer to 15,000,000 plus last year, but we've certainly been paying attention to that regulatory change that's going to be coming about, and we see a real opportunity to be honest with you. We've invested capital and part of our increasing capital spending is to build more on-site treatment units to support our customers' demand in that area. We've been pretty much maxed out with the facilities that we have today. So that's going to be a real positive I think for us. Noah, can I add one more point to Alan's comments? So I think if you look at 2019 guidance, we haven't assumed a lot of incremental from that number. And just so you and I are on the same page and the Street is on the same page, if PFAS becomes a thing here in 2019, that's probably upside to the model. Okay, perfect. Thanks so much. The next question comes from the line of Larry Solow with CJS Securities. It's Pete Lukas for Larry. I apologize if I missed it in a prior question. Just on Direct Loop, you've done a nice job there and expanding it to over 25,000 customers. Do you see the continued growth as a slow grind or more of a hockey stick growth that will need a couple of national accounts to get it going? Yes, Pete, this is Mike. I'll take it now and feel free to jump in. I'd say that 2018 on the direct lube didn't hit our own internal guidance, but still a great growth for the 70% growth year over year on our direct lube business, and it continues to grow in 2019. The point we wanted to mention in the comments was it's more of a blended lube story. And so we're trying to grow both our distributor business and our direct lube business going from $39,000,000 $40,000,000 in 2018 to $50,000,000 in 2019. So whether we get it through the direct lube channels that we talked about previously or through our distributor network, we want to grow that blended lube. That's where the margins are. That's where the stickiness is. That's where we really want to kind of drive this business going forward. Yes. It just reduces the volatility and the exposure on the On base loop. On base loop. Yes. Perfect. And you guys did a real nice job covering it and talking about the EBITDA guidance going forward there. So a lot of positive commentary for 2019 and it sounds like mix is kind of the main driver between the high end and low end of guidance. Is that the right way to think about it or is there any other key driving on the on the mix and the projects that we have. We have the pipeline of projects looks very strong. One of our guys said one of the strongest he's seen in a long time. So we're hopeful that comes through. If that comes through, we're going to be on the high end. If those get delayed for reasons beyond our control, we'll be on the low end. Very helpful. Thanks and congratulations on the quarter. Thanks Pete. Our next question is coming from the line of William Griffin with UBS. Please proceed with your question. Hi, good morning everyone. Just quickly, sorry if I missed it, but could you just detail the Veolia contribution in 4Q for both revenue and EBITDA? And then, it sounds like you're making some good progress ramping that business, improving margins. Just kind of size up for us maybe what you're expecting for 2019 for that acquisition? Yes. So, William, if you give me 30 seconds, I'll pull the Q4 revenue. The EBITDA was about $4,000,000 $4,500,000 in Q4. And so for the year, that turns out to be about $14,000,000 $14,500,000 of overall EBITDA for Veolia. We think that goes up into the high teens into $20,000,000 in 2019 as that business continues to do well for us. But I don't have the revenue numbers at my fingertips. No problem. Thank you very much. That's all I had. Thank you. Thank you. At this time, I will turn the floor back to Mr. McKim for closing remarks. Okay. Thanks, Rob. Thanks for joining us today everybody and we're going to be presenting at next week's Raymond James conference. So we look forward to seeing some of you there as well as other investor events. So we appreciate you joining our call today and have a great day.