We are happy to have Clean Harbors here today for a fireside chat. My name is Jim Ricchiuti, the industrial technologies analyst at Needham. We've got Mike Battles, who's here. Interesting developments, Mike. On the leadership side, I thought, you know, we'd start off there. In the news coming out of Q3, that you and Eric Gerstenberg, currently the Chief Operating Officer, will become co-CEOs, effective April one. That's right. Right. you know, that structure is not the norm, and I'd like to maybe dig a little into that. Sure. How you guys see the roles coming together? Yeah. First of all, thanks, Jim. Thanks for having us. Thanks for Needham for having us present. For people who don't know me, I'm Mike Battles, I'm the CFO, and as Jim said, you know, come April 1st, I'll be co-CEO with the chief operating officer, Eric Gerstenberg. Obviously it's, you know, that's a unique structure. You know, co-CEO is a unique structure. It happens. I guess there's 45 cases of it happening in public companies, but it's not the norm. You know, I think what, the way it works is that if you, if you kind of have followed the company for a number of years, you know, the CEO, Alan McKim, who founded the company 42 years ago, still the CEO, he's been doing less and less as far as dealing with investors, dealing with customers, you know, in the day-to-day operations. He's been more involved in, like, IT types of projects and other M&A and strategy types of things. You know, Eric and I have kind of been doing this kind of for the past couple of years anyways. This is really just a recognition of that. You know, obviously sharing the responsibility is interesting. There's gonna be some... If I'm an investor out there, I would say that this is probably a great way to de-risk the transition. Like, you bring a new person in from the outside, and you have a whole new kind of maybe a different strategy. If you like what we're doing today, we're probably gonna see more of it. Frankly, Eric and I have been, you know, leading the strategy and the evolution of the company for the past four or five years. You know, we work well together. I mean, I don't always agree with Eric, but I'm never disagreeable. Same with Eric. Eric's an engineer, I'm an accountant, and so it's data, it's, you know, it's ROIC, it's, you know, it's numbers that kind of drive decisions. I think that's been very successful for the past few years. I think that continues. We both have our swim lanes. We're both responsible for the consolidated organization, and I'm excited about it. Good. Where do we stand, though, just in terms of your successor, CFO? Where is that? Yep. That's in process. you know, these badges are gonna become keepsakes here in a bit. yeah, we'll announce something in early February. I think we're making good progress. Okay. Okay. You talked about potentially even doing an investor event at some point. Yeah, that's right. I mean, our goal would be to have an investor. You know, with Eric and I becoming, you know, co-CEOs, you know, having an investor day, you know, maybe in late March. We got more to come on the exact timing of that, I think that. Okay. kinda makes sense. Okay. You know, kind of a good time to kinda talk about, you know, long range plans and meet the broader team. As Eric has said, you know, succession planning doesn't end with Eric and I, and there's others in the pipeline that I think it'd be great for the investors to spend time with and meet. It's been a while. Yeah. A decade, actually. Who's counting? Let's turn to the business. Mike, you know, Company's performance in the environmental services, the ES business, you know, strong organic growth. I think you've had a pretty good first year contribution from HydroChemPSC. Mm. You know, pretty healthy margins. If we look back at least, you know, the first nine months, what was driving that outperformance? Because you did outperform. Yeah. fair to say? Yeah, I'd say both I think, I think the HydroChem business did as expected. I think that we were. You know, it's always tough when you do M&A. You know, we kind of integrate that business pretty you know, pretty rapidly. The fact they kinda hit their budget, it's pretty good. Pretty good because there's a fair amount of change management that goes on when you do M&A. It, so it's kind of a quick, kinda rip the Band-Aid off, if you will. We're pleased with the results of HydroChem. You know, the base organic growth business, it grew 20% this year. I think a lot of that to do with pricing, a lot to do with, you know, in Q3 of 2021, you know, we had, you know, we had some pricing concerns, we had some margin concerns. I think that we were really aggressive on driving price and taking out costs to kinda drive that level of profitability, and I think that continues. I think that the pricing that we saw in the back half in 2022 continues on to 2023. There's pricing benefit that you'll get from the most recent price-. Rollover effect. As you get into the early part of the year. Sure. You're saying, you're suggesting potentially could be some other adjustments. I mean, going back in time, Jim, we've had, you know, 3%- 5% in incineration of price increases and in disposal. I think that those days are over. I think we'll get a lot more aggressive on pricing, even in a non-inflationary environment, if that's the case. The other question that we get, obviously we're hearing a lot of concerns, not only in the media, but even here at the conference, just about the potential for some economic slowing. Sure. You guys in the past have been, you know, somewhat resilient. You're not immune. On the other hand, you've got a big slug of deferred revenue. There's some, I think, line of sight, isn't there, to the ES business. Talk about the puts and takes. Sure. -in the economic environment. Going back to 2013, 2014, maybe 2015, you know, we were heavily exposed in the Western Canadian oil sands. We had about $150 million EBITDA. I mean, that went down to $20, where it is today. That was a big kinda downdraft in the business. You know, obviously, if oil prices start to collapse and that slows down, it won't be that material as it was, let's say, back then. The other thing is that, you know, we weren't probably managing the spread in the oil side as well as we are today. I think that we've made a real investment in that business as far as managing the front end of that spread. As oil prices move up and down, you know, we can change the input price of that. The third thing is that, you know, I'd say the industrial business back then was, you know, 20%-25% margins. Now it's down to 15%. My answer is that if it gets below 15%, we kind of just walk away from business, if that's the case. I think that my view is those three things were kind of really acutely bad for us in those years, and I think those things are kind of, we're managing much better. We don't have a lot of history with the HydroChemPSC business. How does that perform typically in cycles? I mean, we have our own, we had our own industrial business. Yeah. We had a $400 million industrial business. I think that will slow. Yeah. The margins I think will stay kind of in that 15% range. You mentioned the pricing actions that you've taken. Are you seeing internally, how are you seeing some of the cost pressures that you talked about earlier in 2022 and continued in through, you know, part of 2023? Has some of that abated? I mean, I think costs are still up. I mean, wages are still up. Yeah. I think we have a rollover price. I don't see that changing. I do say that, I do think that even if inflation starts to moderate, especially for our disposal assets, we'll be able to get pretty good price. Okay. Yeah, before we start talking more about the Safety-Kleen business, the SKSS business, you mentioned that the acquisition has more or less met your expectations. Mm. Have you started to see some of the revenue synergies that... Mm. -expected? Is that more of a year or two? What, you know, how do we think about some of that? Yeah. I guess I'd say that, you know, revenue synergies are tough to calculate, right? Yes. You know, if I'm going out to a job site in industrial services and I see a containerized waste there, and I say, "Hey, you know, why don't you come in and pick that up?" Who gets that sale? Right. Did that sale come from the sales organization that sells the containerized waste services, or does it come from me? It's very hard to figure that out. That being said, I do think there's good revenue synergies that are out there. I think that you can see that in automation in Western Canada and other areas. Kimball, what's the latest? Bring us up to date on where you stand with Kimball and what the expectations are. It's for people who don't know, it's a $180 million incinerator built in Kimball, Nebraska, 70,000 tons of capacity. The construction's in process. It's making good progress. On waste in early 2025. You know, I think it's. We had a meeting on it mid-December, excuse me. I think it's going really well. As you bring this online, what kind of customer, what kind of discussions are you having with customers? Because there have been some customers with captive capacity that are turning more toward the market to you guys, right? Yep. I think that captive discussions continue. I think that we've had, obviously, 3M last year closed. I think there's more to come. I do think that I'm very bullish about our ability to meet with our customers and hopefully entice them to close their incinerators. Okay. I wanna also touch on a press release you put out recently on PFAS. In terms of it was a third-party study. The question comes up about where you guys could play in that market, and how do we think about that? It's gonna be a gradual, fair to say? We're not gonna probably have that in our guide, scientifically, we've proven that our incinerators can burn PFAS. Excuse me. I'm really, again, as PFAS becomes more and more of a thing, we've proven to ourselves that we can incinerate that PFAS. You say you don't have it in your guide, in your outlook. At what point are you going to see enough evidence or that gives you some confidence to talk a little bit more, in a little bit more detail about it? It's up to the EPA to kind of give us clear guidance as to how clean clean is, and I think that when that happens, we'll be able to talk more about it. On the SKSS business, you know, I lost track of how many quarters the margins came in better than expected. You know, what are the puts and takes at this point when we see the volatility in oil prices? We've seen base oil prices come down. You've talked about being able to manage the spread better, is your competitor in this market. Is this really a structural change that you're seeing in the market? You know, IMO 2020 was real, and you kind of lost that. We talked about that for two or three years in advance of IMO 2020. When it came, it came the same time as COVID hit, so you kind of lost that. I'm of the view that 2020, you know, IMO 2020 is real, and it's permanent. Yeah. You may wanna just, Not everybody is completely aware of that, but you may wanna just touch on what that is. Hey, Jim, can you take that question real quick? Sure. For those that don't know, the IMO 2020 rule that came in was an International Maritime Organization rule that changed the amount of sulfur that ships, ocean-going vessels would emit. There was a lot of wake though about the sulfur here in the U.S. that was going into those boats because a lot of the fuel for this was just a byproduct of the sandbox oil, base oil. I'm not feeling very good. I gotta step away for a second. Sure. Why don't we just wrap this one up and bring Jim up? Yeah. Can you bring Jim up, please? All right. Thanks. in the world. Jim, in terms of that, IMO 2023, there was certainly a lot of noise in that initially because we had COVID. As you guys have had the opportunity to really peel away things, it's your sense that from what you're seeing in the market, that there clearly has been some benefit that's coming. We saw it when base oil prices were, you know, we've seen oil prices increase. You guys were paying, presumably, I think, less than what you would have normally paid going back a number of years. Is that fair to say? For those that, again, are less familiar with us, we manage a waste oil collection business that we then turn it back into a finished product that we sell back into the marketplace. That finished product that we sell, we compete with the majors who are making base oil from refining crude oil. We can't control the price on the back end. It's a commoditized market. We're selling against Chevron, Motiva, et cetera. How we keep our spread and we keep our profitability where we want to be is to manage the front end. That's why IMO 2020 was such a game changer for us, because that front end of the spread where we go out and try to get waste oil to feed our plant for the best possible price, it eliminated, you know, a significant amount of outlets where that oil was going. As a result, there was a lot of waste oil available on the market for us to go get. There's probably actually some impact on the back end. Bless you. It's a lot harder to measure. Those boats now have to carry compliant fuel, and so they're using more valuable molecules, if you will, than they were previously. There's probably some incremental impact. The problem is IMO 2020 was they had till March 1st of 2020 to start implementing, COVID hit. Right. As you know, the cruise ships all stopped. The tankers were kind of floating outside of the U.S. ports for a while. So all that ocean-going traffic really kind of crawled. As we know, even the container ships were stalled for a long time. It was sort of everyone expected to be this supply shock where there wasn't enough compliant fuel. In fact, when it came into being was exactly when no one was looking for compliant fuel. We're, you know, in a period now where potentially a more normalized environment for, you know, for the business. Oil prices are gonna clearly be volatile. People are driving a lot more, you know, certainly than they were during COVID. Is this a more normalized year where you'll be able to step back and see really how the business can perform even with the volatility in oil? Yeah. That's the question that Mike and I get all the time... Yeah. is sort of what is normal. Right. Right. Because clearly we've had some benefits. You know, the U.S.-Ukraine-Russia conflict upset the global markets. We've had some weather issues. Mm-hmm. Previously with the deep freeze, the market's really never been able to get back to normal. We only make base oil out of our plant. When you're a refiner, you've got all different cuts of the barrel, and so there's been diesel shortages. We've all read those headlines of 27 days of inventory. People are flying more, especially now that China's reopening, and so there's jet fuel shortage concerns. When you're making all these different cuts of the cow that a, you know, a traditional refiner is making, base oil requires the most processing, and so it's been short run in some of those allocations, if you will. We could see that continuing. I think this year will give us a good look at sort of what is normal. Obviously last summer, where diesel went to $7 and crack spread. Yeah. kind of crazy. Yeah. It certainly impacted the base oil market. The other development, and it does seem like there's been movement, but historically you guys have priced at a discount, right? with your product. walk us through what's happening in the market, maybe some of the conversations, you know, you're having that lead you to believe that, you know, this is now a different environment for your product that you guys... Sure. If you, if you went back to sort of refining over the last 10, 20, 30 years, it was sort of a less than, seen as a less than process. It was a lot of just filtering, the base oil that was produced out of re-refineries was not as good as what was coming out of crude. You fast forward to probably 10, 15 years ago, it was equal. Where we think the industry has now come is that it's better than what's coming out of crude. Yeah. Because what we're taking in has already been processed. It's a large amount of synthetics today in motor oil, and so our feedstock is terrific compared to what it used to be. We've gotten to the point now where we've sort of eliminated that discount because anyone that's into technical specifications of base oil know that what we produce is as good or better. You take that to its logical conclusion of, okay, well, it's better. Are people willing to pay for the better? Mm-hmm. They haven't been, but we're not getting a discount anymore. What we see as the future is what we're making has a 78% smaller carbon footprint. Are people willing to pay for that? Those are the discussions we're starting to have now where, you know, people are kinda running out of ESG ideas, and here's an easy one. You take motor oil made from crude out of your fleet. You put in what's made from re-refined, and you've just lowered your footprint significantly. Is there the potential that, we could see, some news on that front this year, or is this gonna be just very gradual? No, well, I don't wanna promise this year, but I think there will be. There are significant players that are looking to do something in this space. Whether that's an announcement of something with us or we just start signing up some larger customers. Yeah. I think we're gonna start to see momentum this year. Okay. There have been some pressures in the business, even though, you know, you've clearly been showing generating pretty healthy margins. There have been some supply chain issues in this business as well. Where do you see that in terms of some of the shortages, some of the additives, and... Yeah. The additive shortages were significant this past year. Yeah. It forced us to create less blended. Some of that was just, you know, crazy weather that struck one of the key suppliers to the U.S. domestic market that they got flooded in the summer, and we don't see that happening again. That supply has started to normalize. We also had some hydrogen shortages. Mm-hmm. at one of our plants, and we've created a process now where that wouldn't happen again and repeat again. We think this year will be, in terms of our production at our plants and, growing our blended, we'll be back. That will help if there is a step back in the spread, that would help offset that. The company continues to, you know. You've done acquisitions, paid down debt, you've been buying stock back at different periods of time. How do we think about overall capital allocation? Certainly a big investment related to Kimball, but just in general. Sure. How should we think about capital allocation? Yeah. We show, if anyone's seen our slide deck, kind of those four buckets. Internal investments, we're certainly continuing with that. This year will be the big year of investment for Kimball. It'll be, you know, we'll still come out with a number when we announce, but somewhere in the $80 million-$90 million range, so fairly significant investment there. We're looking at some other internal projects to do more of that. Buyback, we've been exercising a program for the past 5-plus years that has been very successful, and we still got over $100 million in that. We still think we're undervalued today, and we're gonna continue with that program. On the debt side, we hadn't been paying down. Obviously rates are rising. We've got a refinancing that we're gonna have to do at some point in the next first half of this year for debt that's in 2024. We may take out some of the debt as part of that refinancing. Then M&A, you know, we're approaching 70 acquisitions in our history. Yeah. That's always been part of who we are. Didn't do too much in 2022, but we had the big HydroChemPSC acquisition to integrate and consume. You know, we turn down a lot of deals. You know, we don't necessarily talk about those or get credit for those, but we kick the tires on a lot of things. Just because we're number one in so many markets, we're the natural buyer. We'll continue to look at a lot of deals. Whether or not we execute a lot of deals, but that's certainly gonna be part of our growth strategy and capital allocation going forward. How do you weigh the opportunities on the M&A front? Because of the size of the company now, obviously it takes a fair amount to move the needle. You know, what considerations are going into your-? Well, we really look for things that will bring us unique assets or permitted facilities or permitted locations. Mm-hmm. Our strategy, if you look at our history of acquisitions, is not to buy a book of business. We have such a great network and such a national footprint that if we can plug someone's, even a small acquisition, that they may not be routing a lot of volume through a permitted site, we take over that site, and we ramp it up considerably. We've had great success with some of those smaller acquisitions that may not move the needle per se, but they actually, from a return perspective, are excellent acquisitions. I would assume valuations are still pretty high. Has there been, you know? Yeah. Well, That- We talked to one of your lead bankers today. We were talking about the environment. He was saying that maybe we're gonna get back to a world where strategics are the right purchasers because there's been so much easy money and cheap money that you've had private equity and others kinda overpaying for deals. Maybe that's finally coming to a close, which I think would be great for companies like us. Yeah. You've had targets out there in the past. You're over the, you know, that $5 billion threshold. Maybe, maybe it's an investor day coming up, but is there any way to think about how you know, how we should be thinking about the company in terms of longer term targets given where you are today? I think that's one of the motivations behind the investor day. Yeah. I can't front run what we're gonna present there. Sure. I think it was at the last investor day nine years ago or 10 years ago, whatever it was, that we sort of established that $5 billion and $1 billion. Maybe took us a little longer than we thought at that time to get there, but here we are and we're ready for the next stage of growth under Mike and Eric's leadership. I'm just gonna open it up. Anybody have any questions out in the audience? Sorry, I just stepped away. I had a phone call, so I apologize for that. I'm glad I came to that. Question? Okay. You've been through different economic cycles. You sound like you guys are... From what you're seeing, how concerning is it for you? You've been through different cycles. This, you know, whether this is gonna be a, you know, a mild downturn or whatnot, do you feel you're just coming into this in much better position than in prior cycles? In the past, you guys haven't been affected that much. Here you are. Yeah, I think that it's. I think, yes. I think that we have a nice backlog, a nice pipeline. I think we're in really good shape as we kinda get ready for 2023. Again, I think that the organization's kinda well-structured. The good news is that if there is problems, and there could very well be problems, I mean, we're aggressive in cost. We're gonna take our costs out. We'll close. We'll do what we need to do, and we have for the past 42 years. I don't think that changes with kinda new leadership. If there is a downturn- Mm-hmm. It is substantive, then we'll take out costs. We get smaller, and we're not afraid to do that. We have a good operation in India, and that's kind of a low-cost jurisdiction, and we continue to make investments in that area and lower headcount in North America. Okay. Well, with that, we're gonna wind down. Mike, thank you. Sorry about that. No, no. Thanks a lot, guys. Jim, thanks. Thanks a lot, Jim.