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

Welcome, everybody. This is Jon Windham, Head of Alternative Energy & Environmental Services Equity Research here at UBS. And if you're here, you have joined the Clean Harbors fireside chat as part of the UBS Global Industrials and Transportation Conference. Very fortunate to be joined today by Mike Battles, the Chief Financial Officer of Clean Harbors; as well as Jim Buckley, who heads up their IR department. Before I hand it over to Mike for some sort of opening comments and sort of level set, just as an introduction, I'm sure many of you are familiar with Clean Harbors. This company has been around for quite some time. It's one of the leading specialty waste and industrial services companies in the United States. A company that we've become quite fond of recently. We upgraded the stock in November. Just seemed like a really opportunistic time to get into a very good company. It was $60 or $61 back then. It's done very well since then. And the stock is up 22% this year. Compared to the S&P, it's 12%. And if you sort of think about the story, really good first quarter result, actually walked guidance up for full year 2021. We've covered the company for, I think, 7 years now. Just in my opinion, the tone of the conversation around Clean Harbors has never been more positive. Given the stock performance, stock is still trading at single digit forward EV/EBITDA. Net debt 2x. EBITDA still seems like a really attractive buy. We have a buy recommendation on it. Mike Battles, tell me I'm not wrong.

You stole all my thunder. If you're asking for a few opening comments, then those are my opening comments. No, I think it's -- first of all, Jon, thank you and the same for the team at UBS for having us here. It really is an honor to come speak to investors. We've had a great day so far. We've had a lot of good interesting questions. And really, we couldn't be more bullish on the company and more bullish on the story. It really is a great company, not only from a performance standpoint, it's a great company to work for. I mean we really -- what I feel what we're doing is really help cleaning up -- we are the sustainability solution for many of our customers and something we're really proud of. I mean the waste we're dealing with is not our waste. It's waste that we get, and we're cleaning it. The alternative for that would be in lakes and rivers and streams. And so I'm of the view that it is really a critical function we do here, something we're really proud of. Alan McKim, the CEO, he started the company 41 years ago, still very much involved in all aspects of the organization today. And again, a really interesting place to work and a great environment for all us to continue to learn and develop.

Okay. Great. So with that, maybe let's dig in. Clean Harbors, fingers in a few different pies. So maybe if you could just sort of walk us through the different segments. And just on a high level, what you're seeing on the incineration side, Field Services and the Safety-Kleen, just in sort of high level, and then we'll sort of dig into it as we go.

Sure. So when you think about the tech service piece of Environmental Services, 2 segments: Environmental Services and Safety-Kleen Sustainability Solutions. On the Environmental Services piece, there's tech, field, industrial and SK branch business. The tech business, Jon, that never stopped. That kind of kept going all through the pandemic. Certain aspects of the business like project work in our landfills and household hazardous waste days, of course, slowed way down last year, but other products of the business like retail and other areas, that grew. And so the financials, when you look at the financials kind of year-over-year, it's kind of like still growing, still doing really, really well. And that's one of our most profitable businesses. So that's also been great as we think about kind of our profitability through the pandemic. Industrial and Field, they went way down. When you shut down projects, and we're all alone on sites. Other types of chemical companies and refiners slowed way down. And as such, we were asked, we were out of the site. Miles where -- people weren't driving around. There weren't many accidents. And as such, there weren't that many spills. And so our Field Services business slowed down. But really to speak to the resiliency of Clean Harbors, we see opportunities in this area. So we ended up developing and putting the -- and first-mover advantage, a decontamination business within our Field Services business, which went out and provided -- if you're at a distribution center and someone's got COVID and coughing all over the place, well, we brought in the team at night and did the cleanup at night and get ready for the next day because that couldn't really slow down. So that business turned into $120 million opportunity in 2020, and that was done by the team that's sitting in a conference room over here, thinking about how we could service our customers given where we are in the pandemic. And that was very early days, we decided to do that. It turned out to be a huge win for us. And it will be a $30 million to $40 million revenue good guy in 2021 as we guided back a few months ago. SK branch business, that's the automotive cleanup business. That business slowed down with miles going way down. That's coming back up. That's close to back to 2019 levels. Still not quite there yet, but you can see from the traffic we see here in Massachusetts anyways, it's soon to be back to normal, if not already there. The other part of the thing we did in connection with the pandemic, we actually are working on a project to kind of split up SK into 2 pieces. Move the branch business into the Environmental Services business and have that co-located with that business, share resources, things that we're already doing kind of anyways, that was done. And then bringing in the oil collection business, along with the selling of base oil into one business called Safety-Kleen Sustainability Solutions, where we're managing kind of both sides of the spread under one leadership, which turned out to be a great opportunity for us. Because on the SK branch side, they're selling parts washers, containerized waste services, back services. Oil was kind of an act of that. Pick up the oil that fill the plants, and that was that. What we do now is that, hey, now we're thinking about collecting more oil in the right locations in the right geographies, the right quality of oil and running the plants as efficiently as possible and selling off that base oil, and that's having a great year for a variety of reasons, demand shortage -- demand increasing rapidly for motor oil as well as some disruptions in the industry have really allowed us to have kind of spread being incredibly wide in Q1 and probably in Q2 as well as we look out in the future. And again, that's been a great business for us. And that will be -- normally, that business, you and I talked about it before, Jon, in normal times, that business is an $80 million, $90 million business it's going to be. And now in the new world, it's probably more like a $100 million business. That's going to be like $120 million, $130 million now in this year, given how wide the spread has been and how many oil price increases they've had in that business over the past few months.

Yes. Okay. Lots there to dig into in the individual sort of business segments. But before we get there, I just want to get your sort of thoughts on the broader lay of the land. One, on policy, how you think about the potential infrastructure bill? How you could benefit from that and play in, just -- not just the bill, maybe a greater focus of infrastructure in the United States?

Yes. So we are in a hazardous waste disposal business, Jon. And so when you're doing infrastructure, building bridges, fixing bridges, fixing roads, anytime you put a shovel in the dirt, you're going to find -- especially in industrial area, you're going to find hazardous waste. And that's going to create opportunities for us to remediate that waste. And so investments in the U.S., whether it be through the infrastructure bill, clean energy bill or other areas or a reshoring of offshore operations in connection with getting closer to the customers, all of those provide opportunities for us in the U.S., where 88% of our revenue in Q1 came from the U.S., 12% in Canada and really more investment in the U.S. is always a good thing for us, whether it's through government program, through the infrastructure bill or through investment in chemical plants, in the chemical renaissance or through onshore and trying to see in certain areas of our business.

Okay. And then the other big thing I was just interested in how you're seeing across all the business lines. Obviously, industrial recovery, the economy coming back, people driving it again quite substantially, right? Everyone's going on vacation this summer. A lot of people are going to drive. How did you deal with labor during the downturn, right? And how do you think that positions you to have enough sort of a workforce to move forward to deal with higher demand? So obviously, the availability of labor more than the price seems to be a challenge for some people right now.

Yes, Jon, I would agree with that. Last year, we did 8% of our SG&A got ripped. We didn't really touch the direct labor. Now that's not to say that in our re-refineries where we shut down 5 of the 6 re-refineries, we did furlough those employees for a short period of time, but they are back online by July, August, September time period. So we were back up and running by -- by the end of September, we were back up and running in those plants with full operations. But to be fair, as we look at 2021 and recovery that's happening, the rapid recovery that's occurring here in the U.S., labor shortage is our gate to that growth. And I'm sure that's not -- I'm not the first person today you heard say that. It has been hard to find labor at kind of any price that's qualified and willing to work and without creating all kinds of wage problems in our current labor force.

Maybe if you don't mind diving a little more into that, it's obviously a big sort of topic right now with a lot of other companies. What sort of are some anecdotal examples of what Clean Harbors can do that's not just, hey, here's $10 more an hour sort of encourage people?

Yes. So the good news is that we provide a path because we have tech, field, industrial, SK branch, we provide a path for people to move up the organization, where we're not just an industrial cleaning company, and that's all we do. And you got to wait for Joe Smith to retire. Otherwise, you're not going to get that job. I mean there's -- we are a national footprint, and then we provide opportunities for people to move, and we do that. We promote from within. Our Chief Operating Officer has been here for 30-plus years. Our CEO has been over 41 years. Our EVP of Business Development has been here 30-plus years, and we promote them within, and that's how we grow. And so it's really providing a differentiator for us, and people can have a real career here at Clean Harbors and not just a job.

Perfect. And then another topic that's going to come up in all these calls in trying to get a bit of a survey of how people are thinking, commodity prices, higher freight rates. Can you talk about how that runs through your business model in terms of -- are you already seeing cost inflation on some of the heavy machinery-type equipment that you deploy in your business model? How do -- can you deal with that? Can you age the existing fleet a little bit this year and put off some CapEx? Or is it more, hey, we can pass on pricing? We're going to keep the assets at the same age. How are you thinking about that this year?

Yes, definitely the latter. I think we need to make -- continue to make investments in our assets, not just the trucks and vehicles, but in our plants. I mean we realize that's where the money is, that's where the value is. But we can't -- we did cut back on CapEx in 2020. Given the pandemic, we need to make investments to make sure that we have quality assets that are permanent and compliant assets across the network. And so we do have 9 of the 13 commercial hazardous incinerators. That does give us some pricing power. We have been leveraging that and has been able -- that along with cost actions we're taking in the business has allowed us to maintain margins, if not improve.

Okay. Great. And maybe since you brought up the incineration, we can sort of move into that segment, which historically is sort of one of the linchpins of the company, given your absolutely dominant market position. What are sort of expectations for price and volume, if you can remind investors with that? And then how much sort of upside, I think, would be the question, do you think there is in pricing?

Yes. I mean, we get that question all the time, Jon. We've had a good run for the past 3 or 4 years where it's been high single digit, low double-digit type of growth every year on pricing for incineration. And so the question we get from smart people like you is when does that party end, and when did we run-up against some bees. In that 10% or 8% growth, about 2/3 is mix and about 1/3 is price, right? So we're always getting 3% to 5% on price every year. That's not going to change. Alan, in the Q1 call, talked about 8% price. I mean, I think that's a little aggressive. But that's the idea here is that our costs are going up, people know that. We need to push prices out. We have been pushing prices out. Stick rate has been pretty good as far as accepting those pricing -- those prices, and we've been able to get that and help offset what I would say is not just a fear of inflation, but inflation. Inflation is here. It's here in health care costs. It's here in insurance costs. You ask any of my peers, you hear it in their earnings calls. It is here today, and we have to offset that. Now the good news is that when you think about inflation around fuels and commodities, which you said earlier, we have a fuel surcharge program we got in place for 10 years now, where oil -- fuel prices go up or down, diesel prices, we can pass those customers -- those fuel surcharges on, and they usually net themselves down to a big nothing. So we're not necessarily exposed on fuel. But certainly, areas like labor and us, so we have a fairly big fleet. As you know, we're the 15th largest -- 17th largest motor carrier in North America. So most of our fleet is internal. But as the business has grown and we are struggling to hire people, we have to outsource more and more. And that, as you know, is expensive. And so that's where we're getting some pressure on inflation is that the business is growing, which is great, which is awesome and recovering very, very fast, which is great. We just can't fill in the pipe hard enough to fill our trucks that fill our -- get the right people in the right places at the right time to offset third-party spend, and that's been a bit of a headwind here as we look at Q2 and the rest.

Okay. And then maybe moving on to the Safety-Kleen part of the business. I got a couple of questions, one more short term and then one much longer term. So the short-term question is, how is your ability to flex that business? Miles driven, which is -- directly drives oil changes, right, was one of the most volatile things that just happened in the last year. Can you just talk about how you're able to flex that business, both on the collection and the re-refining side to flex down capacity and then bring it back on? Any pain points you have there or opportunities that you've learned to take out costs over the course of time?

Yes. This time last year, Jon, we were in full out kind of crisis mode. We were -- we shut down 5 of the 6 re-refineries in our network. We kept one open and really not just -- and that's why in my hope it's a once in a lifetime type of event where there just wasn't demand for the oil, there was a little pick up and there wasn't the demand for oil. So as such, the plants just weren't in existence. We've -- we managed a spread. We have -- we charge the customer to pick up their waste oil at Jon's auto body shop, and we deliver base oil either directly back to our customers or through a distributor network back to our customers. And so that we are managing a spread both on that. The price we sell the base oil at and how much we collect that oil and then relate it. And so the idea is oil prices move up or down, we can manage that spread on the other side of the equation. And there's a little friction there that either prices going up, it's a good thing for us. Prices going down, it's directly a bad thing. It's on the rounds. It's not on the -- it doesn't make a break the quarter or the year. And so that's the answer. The answer is that we manage the spread. I think 2020 was an anomaly, I hope, and we'll continue to manage the spread in 2021 and beyond.

Got it. And maybe then pivoting to what I think is a more interesting conversation and which we've had before is how you think about that business longer term, right? Whatever people get all sorts of different assumptions on what EV penetrations are going to be, but it's obviously not oil. And we've talked in the past that, that's maybe, at least on the margin, a risk to that Safety-Kleen business, but there's a -- I think you'll share with us there's a potential large upside to Clean Harbors as well.

Yes. So it's interesting because we hear that all the time, Jon, that we're in a business that has a terminal value challenge that, hey, everyone is going to be driving electric cars. So who needs motor oil and so why you continue to invest in a business that makes more oil and that's silly. Two things I'd say to answer that. So let's agree over some time horizon, and you and I can debate how long that is, there's about 2 billion gallons of motor oil created today. And let's say that shrinks to 1.5 billion or even 1 billion, as the oil gets electrified and we're all driving electric cars, and that's great. Wouldn't you want to have, as you make that progress from combustion engine to it, like when you want to have a green oil on the way, our oil is the only oil that's been re-refined from motor. No, it didn't come from crude. It came from your car and my car. It's been recycled. And as such, that would be a great solution for you and as you work your way to some form of electrification because there's no way we're all going to be like -- from tomorrow, we're all going to be driving electric cars, we couldn't do it. We couldn't have the charging capability today to do it. The second thing and even more importantly, let's play it out. Let's play it out, you're right, and we're all going to electric cars, and that's going to be 10 years from now and all the combustion engines and passenger cars are a thing in the past, and that's that. First of all, all those cars last 13 years, so it will be a bit probably beyond our investment in the horizon, but I get that point. But secondly, even if we keep playing it out, if you talk about it -- that oil and gas industry is 8% or 9% of U.S. GDP. If you really spend time in Houston or in New Orleans or in the Gulf, you'll see how much infrastructure there is in place. We're getting the fact that our gas stations in every single town in North America, over 2,500 gas stations?

180,000.

180,000 gas stations in North America, and all those need to be -- if we're going to electric, and they're going to close, well, those tanks need to be remediated. They have the same types of permits that we have that when you stop using the oil, the oil and the gasoline, that tank needed to be removed from the ground. And then -- and that's expected processes that we do. We have a remediation business, and we do that all the time for customers today. And we're -- assuming there's no leakage, it's $250,000 to remove tank. That's assuming there's no leakage and no contamination in the soil, then the prices go up from there. So I mean part of me feels like, okay, I think electric vehicle are longer than people think. But let's say they're right, that's fine by me. Let's go. Let's bring on electric cars, and I think we'll have a huge opportunity for Clean Harbors down the road.

Yes. As you think, well, I love the thing about longer term. A lot of the gas stations are in some of the most prime locations, right? That's why they're there, high-traffic areas. And the conversations I've had with people is that -- unless you have a golden stamp that it's been completely remediated, it's unsellable to someone else. But with that golden stamp, it's prime Grade A real estate. Have you sort of thought about scaling that market in terms of how big it could be? Because that is, I mean, right in Clean Harbors' sweet spot doing that work.

Well, I mean, if you took the 180,000 and conservatively said it was 200,000 [indiscernible] you come up with tens of billions of dollars opportunity for the company. But -- and that doesn't even include, as Mike said, all the tank farms, all the barge docks, all the pipelines around that have been leaking that now are going to be unused and need to be taken out. It will take decades just to take down the infrastructure that we're no longer going to need.

But I think the first to go, to Jon's point, are the gas stations because normally, they're at the right corner, right? They're at the super-duper corner right at the highway, which is prime real estate that, if the answer is we're not making gas anymore, we got to clean that up because we want to do something with that, that's great.

Yes. And the other thing, Jon, is to the -- what happens with charging. I mean charging as it is today is not applicable to the entire passenger car fleet. So it's going to have to move to much more rapid charging and/or some sort of a drop in swap model or something and gas station locations could play a role in that. So I think how fast and how long is debatable, but I also think how is still debatable on the electric vehicle side, but there still needs to be technology breakthroughs that everyone is assuming is coming just as the computers got faster, electrification is going to get better sooner. And that's what you can debate whether it's 5 years or 10 years or more. But those gas stations may play a role in that once that's figured out.

And the last thing I'll say on this topic unless you have follow-up questions on it is that, yes, so we've been asked the question, okay, well, you drive a Tesla and if you ever seen the inside of Tesla, it's all a battery, a huge battery at the bottom of the car that stretches from really the back -- the front-wheel base to the back axle. And so that is -- what happens to that battery in a post cars running out, batteries die, why are you guys investing and looking in battery recycling with some other technology that would allow us to bring those batteries back to life? The answer is as follows. We've been in the waste disposal -- the hazardous waste disposal business for 41 years, and we've pivoted based on what the needs of our customers are. And eventually, it's going to be lithium batteries. And when they become a thing, we will be -- and whatever the technology, to Jim's point, we'll be there to dispose of it. I'm not overly concerned about -- like, well, we should buy a lithium battery recycling company today. I'm like, we'll just build it. When it comes, we'll get there because we've done that since day 1. I mean, we're not like we just started this company 5 weeks ago. This is 41 years of pivoting to different types of waste streams and designing technologies that handle it safely in accordance with laws and regulations. And so lithium batteries are very unstable, by the way. We know that. But they can -- they'll be -- when there's enough need there and the market demands it, we'll be there. We're the hazardous waste disposal company. We're the only one. We're the only one in North America that does everything.

Yes. It's almost like I know investors, and I think just mentally, it's sort of emotional psychological animals. We like to think about in states, meaning at some point, we're going to be 100% sort of electric vehicles, okay? Unfortunately, or fortunately, I'm getting a little long in the 2, to the rest of my career. We'll probably be in a dual system, right, whether you have to support both infrastructures, the traditional oil and gas as well as increased electricity infrastructure. That would strike to me is for Clean Harbors, a 20- to 30-year time frame which is good for you. You still get cleaning up and still maintaining the existing system while the utilities are likely putting more shovels into the ground, which will eventually lead in 1 way or another likely to more work for sort of you. Am I far off in thinking sort of that way? Or does it having the dual system is great for companies like yourselves?

Yes, Jon, it's -- we all think in absolute. That's how our kids are. No, you can't, yes, you can type of mentality. So certainly, you're absolutely right. And I just think it's a debate as to how long. And we are all -- I'm not sticking my head in the sand and saying electric vehicles aren't end game, and I think they're going to be super helpful. But remember, back in 1975, we talked about coal going away. How fast coal is going way. And today, although smaller, coal is still a big part of the U.S. economy, whether we like it or not. And my point on that is that we thought coal was dead, and it's been going -- still going today. So my view is that and I don't want to be considered a coal company. That's not exactly what I want. But at the same time, I feel like -- I think the time line of the switch off for oil is going to be longer than people think. And if you think oil is going away, or you should put down your plastic bottoms, right, because the oil is on a lot of things beyond just that.

Yes. Yes. All right. I appreciate those comments. I'm going to switch gears a little bit to one of my favorite topics, which we're going to dive into this in a lot of different ways, which is capital redeployment. Why I like this conversation is you only ask about capital redeployment when you have a company with free cash flow and relatively low debt. So it's a good problem to have or a good opportunity set. So let's just sort of walk through how you're thinking about, I guess, first, the balance sheet, and then we'll take it from there, if you think there's dry powder on that balance sheet.

Yes. So first of all, I love talking about capital deployment because we've done a really good job of it over the past 5, 10 years. And we've got -- our leverage ratio is the lowest it's been in almost a decade. Stocks are at an all-time high. Our leverage ratio is low. We have more cash on the balance sheet than ever. And so -- and we have -- not only do we have a revolver which we got for a while, but we got into Term Loan A -- Term Loan B and high-yield debt. So we've diversified our debt portfolio to give us optionality as to where we want to go from here. And so I feel like we managed the pandemic better than most and come on here with a lot of optionality as far as what we want to do, which includes some M&A, it includes some capital investment and includes a buyback. Now we have some debt. We have about $1.5 billion of debt. But the rates are at a pretty reasonable rate. On an after-tax basis, an incredibly reasonable rate. I'm really not keen on paying that debt down. That we could pay down at basically 2%, 2.25%. So I'm not really that -- pretax, which we're really not that -- I don't think that's an awesome return on your money to pay down that debt. I do think, though, that we have a fair amount of optionality around buybacks and around M&A. And I feel like we could do both intelligently and to provide the best return to our customers. Now ROIC is critically important to us. It has been -- it's on our incentive compensation plans. Just recently, we actually ramped up the percentage. Right now, it's even a bigger portion of the executives' incentive compensation plan. So to say we got the ROIC memo, we got it. And we've done a good job. I think we, as a management team, have done an excellent job of increasing ROIC. Are we where we want to be yet? No. But I do think that we have made great strides in improving it because we've been -- it's part of every conversation now. It's not just on M&A. It's on CapEx. It's on other decisions that we make. What is the return we're going to get? And how do we measure that versus other options that are out there? And I do feel like given the cash we have on the balance sheet, our ability to generate free cash flow, our low leverage, our access to different types of capital and our stock price provides all kinds of opportunities to do all of them. And again, I think it's just -- we are just making sure that as we spend your money, and do a -- we do it smartly and provide the best return for you.

Got it. So lots to dive in there, too, for Mike. So let's focus in on the M&A potential. And maybe we'll start that with how do you feel about the existing portfolio, right? Because there's M&A, but there's also sort of portfolio management, whether it could be divestitures, just as easily as acquisitions.

Yes. So we have done some -- some investors wouldn't give us credit for this, but we have done a handful of divestitures, about $120 million with the divestitures. We have, especially in the oil and gas area in Western Canada, we have gotten ourselves divorced on some of that stuff, not all of it, but some of it. And so we have done a good job. When you go back 5 years, we didn't really do that. We've actually done that and been relatively successful in getting good value for our assets as we sold them to other third parties, better owner to be fair. So I think that -- I do think that the portfolio is in place some more things when you shave off. It's on the round. So Jon, it's not -- we like kind of where we are kind of today as a portfolio. And kind of where we go from there, I think there's -- we want to stay in our swim lane. I've said this publicly many times that we feel like there's assets out there that are -- that we can get. We have a lot of lines in the water right now. I think there's a big, medium -- small, medium and large type of transactions. And we're looking at them all. I think there's good optionality in all those areas. Again, with a focus on return on invested capital.

Got it. And as much as you can, when investors think about that, is that those investments increasing your share in what you're doing right now or tangential markets, especially waste or Environmental Services, sort of this -- kind of vague, right? There's a lot of different lanes that are connected to it. How do you think about that? And as much as you can, is it increasing [indiscernible] in Safety-Kleen? Is it -- you tell me or -- as much as you can.

It's more in our swim lanes and less in general. It's more things that we already do, and we're going to more of that versus a metal leg on the stool, if you will. So I think that, that is directional. And that's not to say we're not thinking about that too. It's probably on the smaller side than the larger side. And I'm not sure, given the challenge, Jon, really, and I'm sure our investors who know us say the same thing is that it's hard to find value. We are looking hard and multiple because of the minus, lost share around in the marketplace and what people are willing to spend on assets that we would think are just kind of whole home. It makes it very difficult to find value. And so as such, that has been a bit of a gate for us as far as finding, again, assets that meet both strategic sense and financial sense. So plenty of assets that kind of make strategic sense, but the prices people want to, it doesn't make sense. I can't get my head around. I can't find enough synergies. I can't feel good about our synergies to make it worth my time, your money and make sure we get the proper return we pass that. And in fact, prove a negative. I can't talk about these things. We pass on stuff just because we can't get the math around it. That's fine. That's what smart companies do.

Yes. And then sort of on the math, is the math, hey, I got a stock that trades on exchange. I can buy a world-class company. Is that the sort of delta you're looking at start buybacks first?

That's exactly right that we had a multiple that we trade at today that we can get a good return on that versus going on buying something that's more expensive that has less of a return. That doesn't mean we're not going to buy things that are a little higher than our multiple because if there's value there, we can see our way to get synergies down, makes sense -- all the sense in the world, but we got to be careful with.

Got it. And on a related topic, and this will sort of take us into sort of ESG thoughts in a minute. But before we get right to sort of your ESG strategy, one of the things that sort of always occurred to me that sort of Clean Harbors and just maybe an investment opportunity in general, there seems to be, and I'll point out some European companies that have been sort of forefront of this, that step one is we're not going to do any fossil fuel investments at all. We're going to get rid of all that stuff. And that's fine. You can do that. But then the real-world is we're going to need this stuff for a long period of time, try to transition out. And I look outside of Boston. Most people lease their cars here. You can transition to EV pretty quick because the closest grocery store is 2 miles away from me. I went to go visit my cousins in New Mexico, closest grocery store, right, is a solid 40 miles away. Like the distance is just so much further where that sort of EV short trip thing isn't as suitable. So we still have a need for all this infrastructure. Is that -- it sounds like we're saying that's not creating an investment opportunity for you. It would seem to me that those -- some of those more fossil fuel-related businesses are going to be around. We have to do it in an environmentally sustainable way. There seems to be almost 4 sellers. Is that not creating an investment opportunity for people like Clean Harbors, which are approaching in a sort of pragmatic way that we need to take care of this infrastructure for years to come?

Yes. I think that's where the value is today. That's the value we see is in that part of the world. That being said, I have a Board that has the same types of progress we don't -- we want to not continue to be the oil answer, we want to be the oil solution because of the same comments we talked about before, is there a challenge on long-term value there? So at the end of the day, the balancing, I do agree with you, Jon, that it is -- I think people have made a bold face thing, we're not going to invest in fossil fuel and so they're out. And that's creating an opportunity there. It really is because I think that people are overselling the other side of the coin. And if you're making agents says EV, I want to just keep saying EV over and over again, maybe my stock price would go up. Because I think if you put that in your title, put that and your stock automatically doubles. And so I just think tht people are overblowing that answer. And I think that the endgame is that over some period of time, yes, it's just how long is that? How long is that?

Yes. So yes, you can always announce you're getting into the hydrogen game. The blooms come a little bit off of that rose, but...

It's a cool technology. It's the fuel cells, hydrogen. The lithium batteries, they're very dangerous. I mean, think of it.

So let's -- so something I'm trying to ask all the companies a little bit is -- and I think you touched on this in your opening comments, but I want to give you a chance to elaborate. How you see Clean Harbors as ESG? And I do want to cover certainly the E and the G part of it in a little bit of detail. So obviously, some near and dear to UBS' heart. And with my other side of the coverage, AltEnergy, which always just sort of automatically qualifies for ESG. I've been an advocate for 7 years that the entire waste industry should be ranked very highly environmental. Again, like you said, not something you produce, you're there to clean it up or deal with it in the most environmentally friendly way. So maybe you can talk about if you're seeing an evolution with investors on how they see you on certainly environmentals?

They get it. Guys like you telling them, guys like me telling them, they kind of get it, but they're fighting against the edict from very high, say, no fossil fuels or no -- no Western Canada, no this, no that. And so when you have that edict, no matter what I can tell you, I mean we are the sustainability solution for our customers. They point to us and say, don't worry. We're going to give it to Clean Harbors. They're going to make sure they dispose of it property. I'm going to get a certification saying that I'm just that. And by the way, it's going to be done in accordance with the laws and regulations and in a safe and compliant manner. And so I mean, I say to investors saying, what would happen if we didn't exist. I mean, paying for a car is -- creates -- a byproduct of paint manufacturing is benzene. Benzine is a known carcinogen. It's dangerous. It's unstable. But we got to dispose of that properly. And so that's the reason why the EPA has made it that way because it's dangerous. And so again, I wouldn't want to find that showing up in a river that kill all the fish. So I just -- people want to kind of make their decisions, their investment decisions on some broad part answers. I get that. I get where people are coming from, but you got to think about what unit. It's not just oil. It's giving up everything. Like if we didn't exist like we are the solution. Again, I'm proud of working. I think it's a great place to work because of the fact that we do things that people don't really dirty job, people don't want to do. But without us, they wouldn't -- what would you have, right?

And then along that, on the governance part, talk a little bit about the Board. So McKim has been at the wheel for quite some time. Full disclosure to everyone. I live in the town next to where Clean Harbors is located. McKim is a bit of a legend on the south shore of Austin. So that's a good thing. But what sort of conversations are you having more of those with investors these days? Is it just about governance, the Board, diversity, things like that, which have become much more of a topic?

I mean I'm part of Board conversations all the time around, of course, making sure we have the proper mix of all different backgrounds. And I think we made commitments in our sustainability report about being more diverse, and we're working to that end as we -- as some Board members retire and move on, replacing them with being very thoughtful in that area. So I'm not overly concerned about that. I mean, Alan, 66 going on 46. You know him, Jon. He's not -- he's very active in the business, and I'm sure he's here somewhere in the building doing what he does best is kind of driving business process change and doing some creative things. So I mean I think that's -- I think he's going to be at the wheel for quite a period of time.

Great. And maybe in a few minutes left, I have a couple of e-mailed questions that were just -- we'll consider them sort of one-offs. It's interesting because they're both on topics that we talked about a lot sort of pre-COVID and then it was all the economy down, the economy back up that we haven't -- it's less of a conversation now, but I think important, IMO 2020, any sort of your updated thoughts on that, where we are just in terms of where the regulation is?

Yes, Jon, that's real. And it was real last year. It just got masked because of the pandemic. And we weren't creating oil, and we weren't selling oil. The IMO 2020, we talked a lot about that for years in front of January 1, 2020. And then the whole world collapsed on us. But clearly, Q1, and as we talk about Q2, that spread is very, very wide. The question is how fast does it get back to normal. And the question we're having internally is what is normal. And does that provide the pennies that we talked about back in the day? I think it does. It's kind of a weird time for us now because everything has happened so fast, it's pretty incredible demand in the market, which is driving prices up. We'll see when the dust settles, like give us a year from now. I'm of the view that there's a price dislocation on the front end of the spread around collecting oil and that's IMO related.

Yes. And then the other question was on PFAS, which used to be talked about quite a bit. Again, I think a similar story where COVID sucked all the oxygen out of the room on -- for any thematic.

That masked up first off, the less oxygen.

It does. And so I'd like to ask about that because that was specifically the question, but I'd be interested in your thoughts just around the administration as well as just a corollary. One of the big holdups in offshore wind on the other side of my coverage was essentially under the previous administration, they weren't fully staffing the Bureau of Ocean Energy management, so they couldn't get the permits. There was a very easy lever for the new administration of pull. Should we expect to see similar things out of the EPA for that, which would just -- pushing forward on some of the actually implementing laws that were already in place and perhaps driving a little bit more business your way?

I mean, at the end of the day, I think that the EPA is a good thing for us, and compliance has been positive thing for us. And I think an active and fully staffed kind of branches of government was with enforcement, I think are winners for us. Company -- whole company is built on compliance and regulations. And so I feel like that, I think more of that is better for us as an organization.

Perfect. And maybe one last one. Could you talk -- just remind investors, you've laid out some longer-term financial targets, just talk about what those are and then key gating factors that you see upside and downside to those, what investors should keep an eye on.

Yes, Jon. So we formally or informally have talked about these numbers many times. We felt it was important in the Q1 earnings call to kind of lay them out there because we want to make sure people -- new people to the company, a lot of new people with investors to stock, we want to give them some basis start pulling their own models together and working with and what they think the long-term goals are. So they are like 1% or 2% of the revenue above GDP, 30 to 50 basis points of margin expansion. And then that all translates into cash flows of upwards of $300 million plus over the next few years as we kind of build the business. And that doesn't assume any M&A. Obviously, if you ran that math out, we'd have $1.5 billion in cash, $1.7 billion in cash and no debt -- no net debt, which would be -- it doesn't seem like we wouldn't want to do that, you don't want to have $1.5 billion of balance sheet at 1% interest on whatever return we're getting. So that's really is not in our best interest. So there'll be some M&A on top of that. That's where we grow from there. Yes. I think that it's a set back the genesis behind it. I think what we're trying to say is that, hey, we're trying to memorialize what we've been saying privately for a long time. And we want to be -- we want to send the message that we believe in this company, the long-term sustainability of this company. Those rates and those numbers, it's what we've been doing for the past 2 years. We're just going to continue on down this path. So what's the gate? I mean, COVID 2.0, I guess, is a gate. I mean there's gates out there that we're going to have problems as the economy moves up or down, but I think we've been good about, in good times and in bad, finding opportunities, managing our cost structure, driving profitability, driving cash flows mean we went through the largest pandemic in our -- hopefully, the largest crisis in our life and I hope, and we're bigger than we were ever were, right? We're in a better shape than we ever at. So again, I think that shows the resiliency of the company.

Perfect. And I think with that, I promised to keep, Jim and Mike, right on schedule. So I very much appreciate you being here at the UBS Industrials and Transportation Conference. I will leave the last word with you.

I just want to thank you again, Jon, and the team at UBS for your support and inviting us to the conference. It was a pleasure.

Perfect. Be well. We'll wrap it there.