Clean Harbors, Inc. (CLH) Earnings Call Transcript & Summary

Good morning. This is Jim Ricchiuti with the equity research department at Needham & Company. I'd like to welcome everyone to the 23rd Annual Virtual Needham Growth Conference. And we're delighted to have with us this morning the management team of Clean Harbors. We've got Mike Battles, the company's CFO. Also participating, Jim Buckley, who heads up Clean Harbors' investor relations effort. So this is a fireside chat. And why don't we start off. Yes, Mike, I think most people in the audience, we were just talking about how you guys have been doing a lot of this. Both virtual -- virtual obviously. But a lot of folks are familiar with Clean Harbors, which has obviously been around for a number of years. But just in the event we've got some people that want to get reengaged with the story, it might be useful to maybe give us a quick thumbnail overview, and then we'll dive right into the Q&A.

Sure. Sure. Good morning, everyone. Thank you for your interest in Clean Harbors. Thank you to Jim and the team at Needham for their -- for inviting us to their virtual conference. It is a great opportunity for us to talk to investors at an all-day media. I think it's a great way to kind of get our message out and tell our story, which is a great story to tell. Clean Harbors is a 3-point -- just quickly about the company. Clean Harbors is a hazardous waste disposal company, and been around for now 41 years, started by Alan McKim, who still owns about 7% of the company and has been the CEO of the company. It was about $3.4 billion in 2019, about $540-plus million in EBITDA, kind of good cash flows, north of $200 million in free cash flows. What the business does though, the thumbnail that Jim is asking for is really -- is in the business of picking up and recycling waste. And what we can't recycle, once we extracted kind of all value from that waste, then we dispose of it in our highly permitted, tough to replicate incinerators, landfills, wastewater treatment plants, re-refining -- oil re-refining facilities, all highly permitted, tough to replicate assets across North America. About 85% of our revenue is in the U.S., the other 15% is in Canada. Again, a great story. And what I'm most proud of is kind of our focus on emergency response. And so we are like -- we're not -- I don't consider ourselves first responders per se, but we are second responders. And we kind of come in when there's been an accident, when there's been a release and help clean that up and protect the environment, which is really kind of a great story for us and something that we, as the management team of Clean Harbors, are really proud of and proud of talking about. Also, we have a great kind of sustainability story. And we're actually -- a lot of part of these conferences we've been trying to talk about that, and we'll continue to do so. As a matter of fact, we are coming out with kind of our first kind of sustainability report in connection -- in compliance with SASB requirements that's coming out probably in Q1, hopefully before the 10-K, but certainly by the end of Q1 is our plan. And so again, we see -- again, it's something -- I think you're really going to like -- it really tells our story and really kind of gives us kind of -- when you think about the company, obviously, the report will talk about how many greenhouse gases we emit, how much water and electricity and so forth. But really, what we do is -- what we're going to talk about is our handprint is what we -- we kind of clean up a lot of the waste. And we're not -- it's more than just how much greenhouse gas that we produce. We just -- we remove greenhouse gas from the environment -- from our customers. We are the environmental -- we are the sustainability solution for our customers, and something, again, that we're really proud of and that -- I think as people start thinking about it, when you first think of an incinerator, hazardous waste incinerator, you don't think green. But to be fair, it's the greenest solution you can have for what we're talking about because the alternative is in the water and soil and so forth. So again, I think it's a great story. And really part of the recovery that we've seen in our price, I think is people realizing that the sustainability story is here to stay, and we're a sustainability solution, something again we're really proud. I don't know if that's the thumbnail you're looking for, but.

Yes. No. Thank you for that, Mike. That's helpful. So a year ago, we weren't looking at each other screens or hotel rooms and whatnot. And I think there was -- for people who were attending the conference a year ago, certain expectations for 2020 in terms of the global economy, the U.S. economy, and obviously, best laid plans. Things changed as we all are well aware. We had a COVID-related shutdown that impacted significant areas of the business, particularly in Q2, we all know. And so I'd like to maybe talk a little bit about what you've seen since in terms of the ES business, the SK business, the improvement you saw in Q3, some of the trends you've talked about in Q4.

Yes. So Jim, I always -- I try to make this for myself. I try to put humor in some of these things. But when I think of 2020, I think of a quote from Mike Tyson, "Everyone has a plan until you get punched in the mouth," right? And so that is really kind of what happened to us. We had a great plan, and you can see it kind of in January and February. I mean, Jim and I were talking about guidance and talking about cash flows, and we're going to have to raise expectations and the IMO spread and everything else was kind of -- and we had a great -- we had a record Q1, and it was -- and we thought we're going to have a record 2020, and then this coronavirus hit and everything went a little sideways on us. And then we were pulling our debt agreements and understand where our covenants were, drawing on our revolver, pulling guidance, taking out heads, I mean really, really was an incredibly busy time. And really what it speaks to is the resiliency of the company and the -- and how it's part of our DNA and how quickly we respond to these types of -- we're a crisis management company, as I mentioned. And so when this global pandemic hit, we were obviously trying to protect our employees, protect our customers, but then looking for opportunity around like the decon work that we'll talk -- I'm sure we'll talk about today. It really was an opportunity for us, and be aggressive on headcount, aggressive on cost. And I think that really bodes well as we go into 2021 and look at the cost saves and other things that we've done, that should carry on. Again, I think that really was a great time for management to shine, and I really believe that we did and really did a lot of different things to be very creative and be very responsive to this global pandemic, and I would say much more than perhaps some of our peers, to be fair.

And then it actually does lead into the next question. You talked about the decon work. There -- as you point out, there have been some offsets to this crisis. You've seen some uptick in that emergency response work. You have taken out costs, unlike I think a number of companies, where we're seeing some of those costs being layered back in, some of your cost reductions are permanent. But again, can you talk a little bit about the benefits, the offsets, and to what extent some of this gets reversed?

Yes. Again, it's going to be -- we're going to be doing this. Jim and I were talking about it over the weekend. We're going to be doing this all year about kind of the adds and subtracts. It really was -- 2020 was kind of a crazy year for a lot of them, personally and professionally, right? so there are a lot of moving parts. Like, as you just mentioned, we did about -- we're going to do north of $100 million of decontamination work, really going into customer sites. And either do wipe downs or doing foggers and kind of cleaning out the area that may have been infected by COVID and getting it ready for like the next day. When you think of a retail environment or a warehousing environment where they kind of have to open next day, that's been a huge win for us and really for the industry. The other thing we did, we did get some government funding, both in the U.S. and Canada. I think the majority of it actually from Canada, of all things, where it was grant money that we received because of -- to keep people employed, and which we did. We did take some costs out, we kept many more kind of employed, even though they weren't as productive as they could have been as a way to get -- we did get some funding for that and did get some reimbursement for that. So that's going to be about $40 million for 2020. So when you look at the headwinds, forgetting everything else you know, I mean those are -- let's say, the decon work goes down, hopefully, as we all get vaccinated, and I don't think there's going to be a lot of government grant money, at least we don't think so, based on what we're looking at right now. So as such, I don't -- if we had nothing else happening, I think that would be a huge headwind going into 2020 -- 2021, excuse me. But it's not, right, because of the fact we took out the cost that we talked about. So some of our competitors -- we talked a lot about this as a management team, do we do wage rollbacks? Do we do other temporary type of -- do we do temporary furloughs? Or do we do more permanent type of actions? And so we did the more permanent type of actions versus giving people like temporary wage rollbacks because based on our analysis, those kind of -- those are, a, they come back, and b, they don't -- they really don't leave people with a great taste in their mouth, right? I'd rather keep the core team and work them a little harder if I need to, but keep their pay kind of where they are versus doing kind of wage reductions and so forth. So we didn't really do that. The good news about that is that when we did take those costs out, we don't think they're going to come back as fast perhaps as they would in other areas. And I do think things like lease consolidations and other types of things, which we have done, we'll continue to do. We closed the site in Texas. We closed the site in Edmonton, some other smaller regional headquarters. I mean, I think that -- I think those are both going to be winners for us in the long term. And I don't think those costs will come back. So we do -- we're in the middle of our budgeting, we just finished it. We're actually kind of trying to just put the finishing touches on some quarterly allocations and the small things. When you look at the numbers, if T&E went down like this, it's coming back to this level. It's not going to come all the way back to kind of equal footing to 2019. And so my view on that is that we're still going to have some savings that are going to be long term. And when you think about headcount, I don't think that's coming back until the business really merits it, certainly on the SG&A and indirect levels. And I think that those costs kind of stay out of the business for the long term. We have made moves too, Jim, to move some operations to lower cost jurisdictions, and that was probably accelerated given the pandemic. So we've done that, and we'll continue to do that. My point being is that the $70 million plus with the decon work and government funding kind of going away, offset by cost saves that stay in the business have a rollover effect into 2021, plus the fact that, hey, the business really -- I mean, the SK business in particular, really struggled, right? And with vehicles miles traveled going through the floor, I mean we've talked about this publicly, the SK business, which normally does 20 -- SK Oil business, excuse me, normally does $20 million, $25 million a quarter, in Q2, too, right? So there you go. I mean, that's going to be a -- I love the view that even in -- even as vehicle miles driven are coming back up, I mean that's going to get back to go. And you saw some of the price increases, which I think you've mentioned to us before in the base oil market, and our ability to manage the spread has really been strong, what really hurt that business in 2020 was demand. And I think as demand comes back at pretty good levels, or I think it is, I think we're going to be -- when we get, let's say, back to normal, whatever normal is, I think that we'll be the beneficiary of that. So my point being is that decon work, grant money way down coffee stick plus the business coming back. Household hazardous waste days kind of got put on hold, but those will be back, and I think they'll be more than ever because people have nothing else to do, they clean out the basements and they like that.

Okay. So obviously, on the cost side, you've got a certain amount of control, and you've done a great job doing that. And you've touched on the fact that the -- putting together the forecast for '21. I'm wondering, as you go through that process of refining the budget process, and what are you paying the closest attention to? What you see here from your customers, how you synthesize that? You talked about vehicle miles traveled as it relates to the SK Oil business. What are the major metrics? Is it [indiscernible]? Is it in durable goods orders manufacturing? What are you looking for? And how should we be thinking about '21?

Yes, Jim. So I'll start by saying our crystal ball as far as how we think about 2021 is a little foggier than normal. I mean, it kind of depends on how I feel about -- how we all feel about vaccinations and being comfortable going to -- doing things again and traveling and visiting families and seeing parents and grandparents. I mean, those are all -- that's a big if. And so we try to -- as we set the budget for 2021, we try to be cognizant of that fact that it may be longer than shorter kind of where we are as far as kind of getting back to normal, given vaccine rollouts and people still -- interpretation about -- in my interpretation, all of our interpretation about kind of getting back to normal until we all feel comfortable doing so. So my view on that, it may take longer than we originally had thought. And I think that's going to be the case because even if we get shot, you're not still sure about who else has got them and how I feel about that. But the metrics that we do look at though, as we try to model out the year, is kind of industrial production, just straight industrial production. The one we really like, which is kind of a relatively new one to me anyways, is the chemical activity barometer, which is issued by the American Chemical Council. That's a monthly report that has kind of measures -- kind of -- it just trends up or down. It gives you a trend of what's happening in the chemical industry. Chemical is a big part of our business. That's where the hazardous waste is being generated. That's actually been increasing that -- that barometer has been increasing since June, and it's basically 1% on prior year. So I think that's a great indicator of kind of how we feel about the market. Vehicle -- and that's more on the SK. On the ES side, I'd say the chemical activity barometer, industrial production GDP, those types of things, construction manufacturing, construction work has also -- have been also helpful when you think about our remediation and waste products business. On the SK side, vehicle miles driven is pretty good -- it's pretty -- I'd say probably the best one we have as far as an indicator of. I mean, it's not perfect because we do a lot more than just dealing with passenger cars and what vehicle miles driven as a track. But that's a fair barometer of what's happening in the market. And they're at 90%, 95% of where they were last year. And I think that's going to be reflected in financial results.

Okay. And you talked about -- you highlighted one of the -- your major verticals, at least on the -- on one part of the business being chemicals. What -- the question comes up often about other vertical markets where we should be paying a lot of attention. Is it different -- other areas of manufacturing? Is it auto? If you could talk a little bit about that, Mike.

Yes. So chemical is the big one. I think U.S. general manufacturing, right, because obviously, the chemical plants, the Dows and DuPonts of the world throw out a lot of waste. But the metal staffing shop in Hanover, Massachusetts also generates hazardous waste. And so that kind of general manufacturing is also a big vertical for us. And the thing, Jim, is that there's a lot of -- so there's no one that is dominant. Chemical is big, it's 15%, 18%, maybe 20% and maybe manufacturing automotive -- not automotive manufacturing, automobile repair. That's also a big indicator for us around the SK side. But there's a -- there's not -- there's a lot of small ones, like government, health care, colleges, universities. I mean, there's -- it is not -- we're not really beholden. That's a good thing and a bad thing. We're not beholden to one end market to drive this business up or down. There's a lot of things, and you try to get kind of analysis behind it. It's really hard to do because there are so many kind of moving pieces as far as these end market and how they affect our business.

Looking at the ES business, obviously, a tough year 2020 was for a number of your customers, your clients. And I'm wondering, as you sit down with those folks and talk about things like pricing and whatnot, are the dynamics different? Have they been -- have they changed given what happened last year in terms of how you interact with customers looking forward?

Yes. I mean, I think that -- as Alan had said in earnings calls, I think either Q2 or in Q3, pricing was lower in 2020. The price increases that we normally kind of put in place just weren't there in the level that we normally have. But as you know, Jim, we do 3% to 5% on incineration a year and perhaps that wasn't -- that pricing wasn't there. Now the mix was much better. The mix continues to be really, really good. And the unique waste streams that we receive from our customers continue to be very strong. But the pricing was probably less of a factor in 2020 than historically it has been. And so your question really talks about 2021 and what we see going forward. I see those prices coming back. I think that -- my view on that is that when you own 9 of the 13 commercial hazardous incinerators in North America, and you own a large majority of hazardous landfills, I mean, pricing has to come back, and we have to be disciplined about that. And I think we are. I think the industry has been disciplined. And I think that we will continue to have modest price increases for the foreseeable future in 2021 and beyond.

So potentially a return to some more normal prices?

Yes. Both on the -- I know you asked a question about ES, but both on the ES side and the SK side.

Okay. And maybe just on the SK business. So you alluded to it. We've seen some positive developments, base oil prices firming certainly from where we were early last year in the spring and the other data points, the miles driven and whatnot. You guys have talked about capacity -- operating capacity moving up. Where are we in -- at least in the recent months with the re-refineries in terms of increases in capacity? It sounds like we're still seeing pretty favorable spreads that you're working with. And just in general, are you able to better -- this is a tough business to forecast. Are you able to forecast this business more recently now as things have stabilized and improving?

Yes, Jim, and I think that when you think about 2020 on the SK business, it really came down to the fact that demand dried up. I mean, I think that -- and I don't know if you're talking about SK. Both on the SK branch business going out and picking up -- cleaning, doing parts, washer services or picking up containerized waste or on the SK Oil business picking up used motor oil and re-refining it and making base oil. So that went through -- that -- both of those businesses in Q2 kind of went through the floor. And we talked about the SK Oil business being fairly profitable, which it was, but there were surely some tough times. And we did have to -- as we've alluded to, we did have to shut down some re-refinery capacity. We shut it down in December. And that's all up and running, all that we had before is up and running and running well. I'm of the view that, that business was doing really well, and we could predict it pretty well in 2020. And with demand coming back, we'll continue to do that. I'm very bullish about the SK business, both on the oil side. And where we make the most of our money, by the way, is on the SK branch side, picking up containerized waste, picking up -- doing parts washer services. And we made -- in 2019, we made about $280 million, about $200 million of that came from the branch business and then $80 million plus or minus came from the SK Oil business. And so, I mean, the SK branch business is a great business model, does really well. Dominant market position across North America and we've been able to really drive that business and do well. And that in my mind, with vehicle miles coming back, there's no reason why that doesn't come back in spades.

And Mike, on the branch business, I'm just curious, just in light of what we saw with the economy last year. Any lasting impacts on that customer base in terms of what happened? Or are you assuming it snaps back?

Yes, Jim, so it's interesting. When you think about our customers that we serve, a lot of small customers, a lot of local dealerships, Jim's Auto Body repair shops type of business model, 300,000 customers across North America. So to your point, I think Jim's Auto Body shop might have struggled and may have even closed, but the brakes still need to get done, right? The antifreeze still needs to be changed. The tune-up still needs to happen. The tires still needs to be rotated. So that may -- now Jim's may have closed down, and they opened up Mike's Auto Body shop down the street, and that's been -- we'll just service that. So I don't think demand is going anywhere in that business. I think that there's certainly -- and our bad debt expense doubled this year. It's a lot higher in 2020 than historical levels. And so I think a lot of that has to do with the fact that these smaller customers have struggled. And so we've had to increase our reserve to cover that. So $9 million is normal, we're $16 million-plus this year.

Okay. And as we know, most of the discussion in these conferences in the early part of last year, we were all just fixated on IMO 2020.

Oh, yes.

How do we -- how should investors be thinking about this, Mike? Going forward?

Jim, IMO happened. IMO 2020 became a regular -- and in January and February, we talked about, Jim and I, we saw the spreads widening in base oil pricing, you saw it in charge for oil pricing. This is happening. And it happened all year. That's the thing, Jim. I think it really did happen. It just got swallowed up in a demand shortfall that people just got locked in their houses for a few months, right, and maybe still are. So I think that's really what's driving this issue. I think IMO is real. IMO happened, and we're actually seeing the effect. That's part of the reason why the stock price was up. This time last year, we were all kind of doing -- I think everything was kind of up and to the right, and it was. And then demand kind of went through the floor. But I'm of the view -- when we've had record CFO pricing, as you know, Jim, all year, and I don't see that kind of going away, so I think that spread is going to be wider, and I think it's been wider for longer. And if demand comes back, which I think it will. When? Open question, but it will. I think it's -- I think we're going to see great returns on that business. And I'm really bullish on it.

So just in case where we see a return to more normal business conditions, this begins to stand out a little bit more?

Absolutely, absolutely. So we looked at some analysis, did some spread management. Spreads are wider this year than last year. That's for sure.

So -- and we already touched on how unusual 2020 is -- was, potentially some more normal operating conditions. And we also talked a little bit about the various puts and takes that you had in 2020 that were unusual. So I'm wondering, is there a way for us to think about your adjusted EBITDA margins because there was noise, obviously, in some of those numbers last year.

So we have had 11 straight quarters of year-over-year market spec. Now in 2020, that's unique because of the decon work was probably -- margin was better than normal, that's emerging response and the grant money, of course, is -- margin all month, right? It's all pure EBITDA, right? So -- but even pre-pandemic, going back to 2019, we've had a great run for the past 2 or 3 years of margin expansion every single year. I don't think that changes in 2021. As a matter of fact, I think that it's going to be -- going to continue. Now with the grant money out and maybe the decon work lower, I mean maybe going from 2019, we always say 25 to 50 basis points a year. So if you did that and took 2019, 25 to 50, 25 to 50, I think that's when we land in a normalized year. It's -- I think 2021 margins would be lower than 2020, just because of all the grant money you get and other things like that, that are pure margin winners, and those kind of have to be taken out of the equation. But I do think that the cost saves we put in place, the utilization at our plants, the increased capacity at some of our plants, those are driving costs -- all the cost saves on site consolidation and headcount management and utilization management of our employees. I mean, all that stuff is on the table, and I think that's been a big win for us and that continues. I don't think with the pandemic going away, I hope it does go away really soon, I don't think those types of things develops and bounce back. I don't -- I just don't.

Okay. And just on the subject of the pandemic going away. I mean, right now, we're not seeing it go away. I'm just curious if -- to what extent that potentially even provides a little bit of a hedge if it starts off a little bit more slowly in [indiscernible] business. I mean, I don't know if you can comment at all as to what's been happening with the decon work.

Yes. So at one juncture, Jim, I was -- this is going back a lifetime ago, which is like 6 months ago, out of the view that the decon work was going to ramp down, and there'd be a gap and then the business would pick back up. And what I think what's happening is the opposite, is that the decon work is still continuing on, yet the business is picking back up anyways. And so I think that there's going to be a -- I don't think there's going to be a gap. I think it's going to be a double up, where I think that we're going to have. And so how much that is? I have no idea. I really don't. I would say that maybe -- we've averaged $10 million, $12 million a month, maybe it starts $8 million or $9 million, and it goes down from there, and you tell me when we're all going to be back at Fenway Park and tell me kind of that's -- I'll tell you when the decon work goes to 0. And whether -- if it ever does at all, but I think it becomes less and less of a thing as you roll yourself out. And I think Jim and I have been telling people, hey, start with January, go to July and start with an 8 or 10 and work its way down from there. And we'll know -- you'll know as on as we know. And I don't know. It's like -- it's still -- here we are in January, Jim and I, back in November, thought that was going to be pretty much done by December. Now we're still hopeful.

How are you guys managing this internally in terms of cases that have come up within the company. And it's -- or is this like a lot of companies where it seems like as this has dragged on longer, we're in a better position, companies are in a better position to manage this?

Well, I would say that the -- I would say that our safety culture, we hope, lends itself for our employee base to be safer than the average person that they are dealing with dangerous stuff all day, and so they are being safety conscious in their personal lives as well as their professional lives. I would also say that our incident rate, our infection rate is lower than the national average, both in the U.S. and Canada. That being said, we do have a lot of cases. And we're not -- no one's immune, at least yet, from getting sick. And so -- we've had a fair amount of cases. We meet every week. We meet every day on the topic and to keep our employees safe. Because the thing is, Jim, I mean, these -- the employees, they -- work-from-home is not a thing for them, right? There's no working from home. When you're going out, you're picking up hazardous waste at customer sites. I mean the work-from-home is not a thing. And so they don't have that luxury to kind of just kind of work from home. And that's kind of our culture. So many people here in headquarters are still here. And we try to encourage that because it's really -- it's important that we kind of show that we're being safe, like they're being safe going out and doing their jobs wherever that may be.

So politics have been in the news of late. Apparently, changing leadership. What can you say? How are you guys viewing the changes that potentially could be coming down the pipe? You guys have some exposure. You've talked about the PFAS. What's -- any early sense as to how some of this might be impacting the business over the next 2 to 4 years?

Yes. So normally, normally, presidents kind of come and go and administrators come and go and different leaders of the EPA are -- have their own prerogatives and their own drives. But kind of what we're dealing with is pretty dangerous stuff, and as such, normally, the materials that we're dealing with don't really change with different administrations. And as such, it doesn't really have a material impact on our base business, whether it's Republican or Democrat, a progressive, conservative. What we're dealing with is not something you really want to touch or screw out with. That being said, a Biden administration with a little more progressive view around -- especially around PFAS in areas like Michigan, Ohio, Pennsylvania, where centers are coming up for election in a couple of years, I do believe are going to be a catalyst for incremental type of regulation around PFAS. And with that, we are -- whether -- whatever the method of disposal is, whether it be incineration, hazardous landfill, wastewater treatment, wastewater recovery, that's what we do. And so we're the only company that can do it all. And so as such, I think we're in the best position to address whatever regulation does come down the path on PFAS. We know it's dangerous, we know it hurts people, we know it needs to be further regulated. Everyone's on the same page on that. It's a matter of time. And so as Alan said publicly a couple of times that it probably goes a little faster under a democratic administration with a democratic House and Senate. I do think that goes a little faster. I do think that -- I'm not -- when I give out guidance in a month or 2, I'm probably not going to have anything for it per se because I think that the court still have to work their way through. But as far as the long-term catalyst for the business, we are feeling great about that opportunity. And we've talked about -- we've had other people speak, the Chief Operating Officer, about 20,000 to 30,000 more tons of capacity in incineration coming online in the next 3 to 5 years, that continues. And that effort continues, including the opportunity, if we had to, to build a new incinerator if the market demanded.

Okay. That decision process for building a new incinerator, can you walk -- just curious, walk us through the considerations and the timeline that's involved.

I mean, obviously, it has to be a good return to our investor. We'll talk about capital deployment in a minute. And we do think it would be, it's just a matter of -- there is a lot of -- it is a 3- to 5-year exercise. Even we sign it tomorrow to do it, it'd be a 3 to 5 because of the permitting process. But when we did build the El Dorado, Arkansas kiln back in 2017, it feels like a lifetime, but it was only 2 or 3 years ago. We did look at both our Kimball, Nebraska and Aragonite, Utah sites, and we could put another kiln on those sites as far as the physical space. So we could do like we did in Aragonite -- like we did in El Do, put another kiln on an existing site, so it wouldn't be a new greenfield per se, it would be a brownfield where site already has operations on it. So as far as warehousing and security and so forth that already exists on the site. So that would be the idea of that. Again, we continue to have talk -- we have -- we talk about that every quarter with the Board. We'll continue to run analysis on it and see how it would work and the schematic going after.

And you -- it does segue into the next question. Very strong year, obviously, for free cash flow as we think in 2020. Certainly, we've seen it through the first 9 months. You've got leverage ratio pretty low by historical standards, right? What is it? That's below 2.0, I guess, for the trailing 12 months. So yes, that's the question that comes up a lot about deploying. Where are you going to deploy this cash over the next 1 to 2 years?

Yes. So I think that -- so Jim, we have been -- haven't done a lot of M&A in the past couple of years, as you know. And I think that we've tried to be very disciplined in how we deploy our capital. And obviously, with the pandemic, we are very concerned about going after M&A during the pandemic. And so -- and as such, our cash has built a bit. Frankly, I'm of the view that I'd rather be lucky than good. We were thinking about doing some deals back in 2019, couldn't get the math to work. We couldn't get -- the strategic sense, made a lot of strategic sense. Financial sense, it didn't make. So that's fine. And thank goodness we did because I wouldn't want to try to do an integration. The way we do integrations in the middle of pandemic when we couldn't travel, we got everything on Zoom, which would become incredibly difficult to do what we need -- you need to do in a normal M&A deal of that size to make the deal work. So we -- so as such, we've been generating a fair amount of cash. We've been in a great leverage position. I think we're in a -- to do a bunch of different things. When you think about deploying capital, whether it be in buybacks, which we've done some, we still have about $250-or-so million as of Q3 available under our initial authorization, whether it be M&A, I think we've been disciplined and we'll continue to be disciplined and -- around that and stick to our swim lanes in areas where we know and where we think we can really add value and leverage our high fixed cost base in our incineration and landfills and re-refinery capacity.

Well, talk a little bit about that M&A pipeline. You've been more cautious just in light of the economic events, but are things picking up a little bit? Active? I mean, given the size of the company, sometimes the M&A, it's not necessarily going to move the needle unless you do something of size. And just thinking if there's a way for us to be thinking about M&A and possibly areas that might be of interest to you and the type of M&A?

Yes. So it really is trying to stick to our swim lane, Jim. And it may be a lot of singles and doubles and not home runs. I'm actually personally -- I know it's not a needle mover, and maybe it's harder to model. I'm of the view those are much better because you don't need a lot of -- you don't need 1 or 2 to do well, for the whole portfolio to do well. And so I'm of the view that we're going to -- and you asked the question about pipeline. The pipeline has been robust, and we're pretty busy with that area. I mean, I think there's -- I think people realize that there's money to be deployed and people want to put money to work and so do we. And so we have been active out there in the marketplace, and smaller deals. I don't think we have anything on scale of super large right now to speak to, but I'm of the view that when we do our balance sheet, we'll be ready to roll. And I'm really proud of the fact that we've been able to kind of manage our financials through this pandemic. Just about a month from now, maybe 11 -- 10, 11 months ago, we were looking on our coverage -- our covenants, looking -- and drawing on our revolver. And so having a little cash around maybe is not the worst idea I've ever heard in my life, now that we have, let's say, a new deck experience, if you will.

You guys have been disciplined buyers, but I'm curious what -- from a valuation, what you're seeing out there, is there -- has there been any reset? Or is it just things...

Jim, that's the problem. The problem is people want to go back and get paid on 2019 and '18, and we want to pay them on '20. So there's a huge expectation gap on valuations. And there always was, we get it. There's always a valuation gap. And there's always -- you got to work your way through that as to what you include, what you don't include. And we go through that exercise and we're really good at it. But at the end of the day, it makes it little trickier given the pandemic and what we're really buying. And what -- first of all, what sellers want to sell, what they want -- whatever they want to sell to and whatever we want to buy. And so I would say that -- I'd say to your point -- I think the point of your question, I think that multiples are still very high. And by the way, the debt market is giving away cash. So they're just giving way cash, and that's also spurring valuations that are, let's say, higher than where we're comfortable with at the moment, to be fair.

Okay. And early on, you touched about ESG, and we all are looking forward to the sustainability...

Well, it better be good.

Q1. It's sometimes -- I'm curious, is it -- has it been a tougher message to convey for investors in the past, but maybe that's changing. And I'm wondering how you're going to be -- how the perception is changing from folks you're talking to? I think you've mentioned that you guys talk to some European investors, there's more awareness of this. And just in general, I'm just curious how you're being viewed.

It's everywhere, Jim. We're not going -- it used to be like -- you're right, it used to be like an international investor, a European investor would ask about -- more about ESG. Now it's in every conversation. And just as you know, Jim, how I feel about Clean Harbors, we were doing ESG before -- sustainability for years. Sustainability was cool. I mean we've been doing -- this is our whole business model. And so the fact that we've improved our scores 40% in the past 2 years, the fact that we're issuing sustainability report, it's really been documenting, like we're doing this report. We're doing this on the side. We're not -- we didn't hire an army of consultants to write this thing because all of this is document we already do. And so again, we're going to issue this report. And hopefully, we're proud of it. I'm going to be proud of it. That's going to be what you want. But I think it's -- I think regardless of doing the documenting, I think we didn't have to go out and like go out and do a bunch of different work to fix it. It's a document we already have.

Okay. And actually, last question. Some people will bring it up. I think we're all hearing more and more about part of the -- the death of the internal combustion engine. So I mean, realistically, this is going to be a long transition. And I think you've talked about, there are some benefits and that will come along as we move down their path.

I'm of the view that the pendulum is swinging. I mean it took -- I mean we still have coal-fired plants. I mean the coal is still here. Coal was supposed to be dead 30 years ago, right? And so I'm of the -- look, I get it. EVs sound good. If you got EV in your title, your valuations just went up 2x, 3x or whatever the number is, I'm of the view that let's not just count out oil just yet. And again, which I've said publicly many times, like if that were the case, if we're all going to be -- this is -- we're all -- investors doing this in 30 years now, which I doubt, and EVs are everywhere, I mean, all gas station tanks, oil tanks and gasoline tanks need to be removed from the ground, that is our business model, by the way. We also do that, and we will be a great beneficiary. Our field service business would be the great beneficiary of removing all those tanks. And forget all the pipelines and the refineries, I mean, that drives the American economy. And I'm of the view that it is more perception than reality at the moment. And I'm of the view that, let's put this, I don't own a lot of EV stocks personally. And I think they're a little bit overvalued perhaps, just my own free tip of the day.

I am curious, though, as you guys look at some of the opportunities there, one of the things that's come up is how folks -- assuming that happens, whenever it happens, there's going to be a need to handle some of these batteries and first...

And that's our business model. I mean, we handle the nasties of the nasty. So when it becomes -- I mean, right now, I mean, those batteries are sitting in people's cars right now and Teslas and other [indiscernible] they're going to run out of life and they're going to need to be destroyed and there's some dangerous chemicals in there, and that's what we do. And so when that opportunity comes up and as an opportunity comes up, as I said earlier in the conversation, we're a crisis management, we're trying to be focused on -- it's part of our DNA to see what's going on in the market and adjust and react quickly. That will be the case. We will do that.

Okay. We're running out of time. I think we're going to have to leave it there. Mike and Jim, thank you. Thanks for joining us.

Hey, Jim, thanks for having us. And thanks for all your interest in Clean Harbors.

Thanks.

Take care.