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

Thank you all for joining us right after lunch here. I know this is a tough slot. So we will try to make the most of it. But for those that don't know me, I'm Tyler Brown, senior analyst here at Ray Jay. I cover transportation, environmental services, also do a little heavy construction. So kind of a wide range of coverage there. But this afternoon, I'm really excited to have Clean Harbors joining us. Presenting today is the company's CFO, Mike Battles; company's COO, Eric Gerstenberg; as well as the SVP of Investor Relations over there, Mr. Jim Buckley. So I think some of us know the story with Clean Harbors, but really Clean Harbors is really one of the largest specialty waste, environmental remediation, emergency risk companies out in North America. They really have an unrivaled disposal network. That's something that we're going to talk about, especially with Eric care. But with that, I don't think we have any slides, Mike?

No.

But I would like if you guys could maybe just set the table for those that may be less familiar with Clean Harbors, a little bit about who you are, what you do, then we'll kind of go in from there. And if anybody has any questions, feel free to ask.

Yes. So I'll start. Eric Gerstenberg, Chief Operating Officer. I've been with the company for over 32 years. We've -- we've grown with over 60 acquisitions over 42 years. And first talking about our business model. We have over 700 different branch locations, service branch locations located throughout North America. And those branch locations provide environmental services to all different types of industries that we serve, which is quite diverse. We have 4 primary different types of service branch locations. We first start with our technical service division, which that group, they go out and provide packaging, transportation of hazardous waste from our customer sites into our spoke and hub disposal network. Complementing our technical services group is our field service branches. Our field service branches out in the field, predominantly the utilities industry, where they're supporting tank cleanouts, manhole cleanouts, utility work, that, again, generates hazardous waste into our disposal network. In addition to field services, we have industrial services branch types. In industrial services, we are out providing cleaning services, high-pressure washing and vacuum services out at large customer sites, particularly the refinery industry, the chemical industry, manufacturing industry. And through those branch types, we have over 1,200 employees that work day in, day out at our customer locations. And then finally, we have our safety clean environmental branch offerings. They are servicing a lot of the automotive segment, providing what's called parts wash services, supporting repairs of cars, used motor oil collection. Those different branch types collect hazardous waste, package hazardous waste and they transport it back to our disposal network, our disposal and recycling network. We have over 10,000 vehicles and over 1,500 railcars that provide that spoke and hub and final disposal transportation throughout North America. In our back-end assets, they're really the crown jewel. It's really a moat where we have incineration services that we provide hazardous waste incineration for the nasty-type compounds that get generated from the chemical and refinery industry and manufacturing industry. We also have a collection of hazardous waste landfills, solvent recycling facilities, as well as 3 -refineries that collect the used motor oil, reprocess it into a base oil, and we then sell that base oil and make it into blended oil products to be sold in the market. So that's really the business model that Clean Harbors has built around.

Perfect. So I know we're all dying to talk about base oil and base oil spreads. But we're going to get to that, but we're not going to start with it. So I do want to kind of come back to environmental services with what houses technical and field services. And I just want to kind of just reiterate. So at a very high level, you really manage and package the hazardous waste from a generator who has generated it. You transport it [indiscernible] in your broad network of disposal assets. I mean that's probably the easiest way to think about how each piece kind of links together within ES.

That's right.

Yes. So what I'm curious about is, you obviously perform a lot of different services. If I recall, I thought it was something like 50 or 60 different services.

55 different lines of business we call them.

Right. So a lot of different services. And I'm just curious how competitive each of some of those are. And maybe you can talk about what some of the bigger pieces of that -- those 55 lines are? And maybe we can get into that, but just maybe talk about the competitive landscape?

Sure. So the way we look at it, again, 55 different lines of business that range from things like clean pack services, which is packing laboratory chemicals and providing disposal with that from vacuum services where we go out and provide vacuum trucks and suck out tanks and clean different equipment for our customers. So that's -- those are just 2 examples of the 55 different lines of business. When we think about our customers and the competitive nature of our competitors, what we're really trying to focus on is cross-selling within our customer base as many different lines of business that we can. So as an example, in the chemical industry, out of those 55 different lines of business, there's -- they would procure about 18 of those 55 different lines of business. And our sales job and our stickiness and our moat of disposal assets is really why -- how we differentiate ourselves as offering as many of those as we can get embedded put our employees on their customer sites, and be able to separate ourselves and separate that competitiveness through our collection of assets.

So if we certainly though on the incineration side, I mean we own 9 of the 13 commercial hazardous incinerators; #1 dominant position. We own 1/3 of all hazardous landfills. We own 1/3 of all TSDFs. I mean we are in a dominant position. We're the only company that can provide all services outside of nuclear to our customers, regardless of the waste stream, which is a huge differentiator.

Yes, interesting. So I don't want to necessarily open, I'll call it, a can of worms, but I am curious, Eric. So how do some of these projects get priced? So I guess I could kind of see emergency response being a spot type of quote. I think about -- I understand the soil remediation project, maybe there's a bid and it's a long-term project. But on some of the industrial cleaning, I'm kind of curious, and I'm going somewhere with this around labor and -- but I'm just more curious about how some of those contracts are priced?

Yes. So the largest generators of hazardous waste, they're predominantly bid through RFPs, proposals, bids where we've developed a relationship with that customer. And we're answering the call to that RFP. And they're a multiyear agreement, typically a 3 or 4 evergreen type agreement that we're able to win an RFP and then embed our people on. And then there is some smaller regional "by day, by month-type services that we provide." But for the larger quantity generators, their long-term RFP proposals.

So the reason that I bring this up is really around labor. So I would assume, and we don't have a slide, but if I did, I probably see a slide with some guys with space suits, walking around with some cleanup work, seems very labor-intensive and somewhat specialized, I think you would agree. But I'm just kind of curious, so how do you guys manage through labor? And the reason that I ask this is, how much ability do you have to push through you have a very tight labor market, your ability to kind of recoup some of those inflationary type costs?

Yes, great question. So first, from a workforce, we're a 20,000 people. And of that 20,000 people, roughly 14,000 of them are working in the field. And certainly, in today's type of demand in the past 1.5 years type of demand, that differentiating ourselves from our competition is very important. We've had to really focus on turnover as one of the key areas. This year, year-to-date, we're a net positive 1,000 field employees. And we've been able to do that by putting in a multitude of different programs across our employee base and increasing our level of talent in really difficult market conditions. And based on our ability to provide multiple lines of business and services is what has allowed us to have them rely on us because we can provide the labor to them and they've been valued customers, and we get embedded with them, and they rely on us. So we've been able to differentiate ourselves there.

Yes. That's helpful. And then -- so let's just kind of walk down this chain. So we've managed, packaged, we've helped clean a utility out, for example. And there's this output of waste. How do you get it? So let's say that, that utility was in Corpus Christi, it needs to get to Deer Park up in Houston? Or it was a soil remediation project somewhere out in the South, and it needs to get back to one of your landfills. So can you talk about transportation? Can you talk about any competitive advantages you feel like you have on that front? Because to my understanding, you're a fairly large consumer of transportation. And so I would think that, that would give you a competitive advantage in some of these bids?

That's right. That's a great point, too, Tyler. We -- as I mentioned earlier, over 10,000 vehicles throughout our fleet. And when we think about our spoke and hub network, each of our service branch locations have local collection trucks made up of box trucks, vacuum trucks, some van trailers, tanker trailers and straight job vacuum trucks. That core hub is able to provide services locally and bring that waste collection back to a local spoke or a hub TSDF where we then aggregate it and we're able to supply transportation from that spoke into -- for a long haul into our disposal assets. That's provided through a whole national transportation network. That's comprised of long-haul van trailers, long-haul drivers, long-haul tankers as well as a fleet of railcars of about 1,500 different railcars, all different shapes and flavors of railcars that provide bulk transportation from those spokes into our refining and incineration and landfill assets. So we manage -- we predominantly manage 85% to 90% of all transportation through our network.

Okay. So that's internalized?

Internalized.

Interesting. So -- but you are a pretty big user of the railroads?

We are.

Yes. And I think you said 1,500 railcars?

Correct.

Okay. So the railroads -- for those of us out here who know much about transportation, unfortunately, I do, I guess. The rails have struggled service-wise. I'm just curious what that -- has that been -- is that an added cost? Has it lost volume? Has it really not been a big issue? I'm just kind of curious.

So we have had pocketed disruptions of rail in certain areas, a few different geographies that have affected the movement of the fleet of our railcars in particular lanes. We've been able to work through that, by and large, by supplying supplemental transportation through our fleet and providing long-haul tanker or long-haul van transportation or bulk quantity dump trailers. So we've been able to work through it. It has had some disruptions, but it really hasn't affected our volume at all in the amount of service we provide to our customers. Delays maybe, but not really volume.

Yes. Okay. That's helpful. So okay, so let's walk kind of again through this chain. So you've managed, you've packed, you've effectively collected the waste. You've brought it back to, say, a hub. You've made that, call it, middle mile move. And it finally that waste ultimately ends up at one of your disposal assets. So let's talk a little bit about that because I think that here, we want to spend a little bit of time and just really understand what type of disposal assets you have, Mike, you touched on it, maybe we can kind of rehammer that home, but just really understand about how unique and infrastructure-ey how these assets are?

Yes. So I'll start with the incinerators, and Mike was rambling off the numbers earlier, the counts of incinerators. We have 9 commercial incinerators, where we have the over 65% of that commercial incineration capacity. And those are located -- we have a couple in the Gulf, and we have 2 out West and 1 in Canada. Those locations really are a foundation of multiple different capabilities. They handle bulk liquids, both high BTUs and low BTUs. They handle bulk solid, so remediation events where they're Superfund cleanups. They also handle a large volume of containerized waste that come in van trailers. Some are -- we're handling over 350,000 containers a month of aggregated collection of waste that flows into our disposal network. So they're able to move and manage those. They're made up of tank farms, and they also have very unique capabilities. One of the areas that we support a lot of is very unique waste streams, whether it be cylinders or really unique bulk tanker quantities of nasty chemicals that have to be fed directly into our units, which many of our other incineration sites don't have that capability. Moving on from the incinerators. We got a great collection of 9 hazardous waste landfills throughout North America, a couple in Canada and the rest in the U.S. They are all rail served. They're able to take quantities from long-haul distances. Some of them have some very unique capabilities. Complementing our landfill network, we have a collection of our used oil refineries, which I'm sure we'll talk about later. There's -- those -- that refinery platform takes used motor oil and is able to convert it to base oil. We also have solvent recycling plants. So when you think about the pharmaceutical industry, that creates a lot of high BTU solvents or recyclable solvents along with manufacturing, we're able to recycle solvents and produce that. Along with wastewater treatment capabilities, we have some strategically positioned wastewater treatment sites that take highly acidic and highly caustic water and neutralize it for discharge from there. And then we have all these aggregation, what we call TSDF, transfer storage facilities that aggregate waste and make it more efficient for long-haul transportation to those final assets.

So I'm curious, how easy are these to add? So if we think about incinerators, I mean how many incinerators, and I get it that you guys did an expansion at an existing facility in El Dorado. There's some talks about 1 in Nebraska that's kind of underway. But outside of that, has there been much capacity either on the landfill or the incinerator side, really to speak of?