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

All right. Welcome, everyone. Hopefully, you can hear me all right. And welcome if you in the right place. We were at the Clean Harbors fireside chat as part of the UBS Industrials and Transportation Conference. I really appreciate you being here today. Just a quick note on the format, it's going to be a fireside chat, quick Q&A, and then we will open it up to the audience to ask any questions, which you can ask live in the room or feel free to ask via the website. Hopefully, there's instructions on there too. Just a quick introduction. My name is Jon Windham. I head up alternative energy and environmental services equity research here at UBS. But the star of today's show and who you came to hear from is Mike Battles, who's the Co-CEO of Clean Harbors. Welcome, Mike, and thanks for being here.

Jon, thanks for having us, and thank you for the UBS team to have Clean Harbors here and certainly a great opportunity to tell what we think is a very exciting story.

Yes. Well, let's get into that story. You're obviously just coming off the Analyst Day very recently, which is nice enough to go out to in Chicago, and we go into the re-refinery in Indiana, which was really interesting. First time I'd been to a re-refinery. So it's good to see tangible things. Can you just sort of level set people with the Clean Harbor story, the sort of 2 to 3 minutes, what you guys are telling investors?

Sure. So Clean Harbor is the largest hazardous waste disposal company in North America. We are $5 billion in revenue in -- a little over $5 billion of revenue in 2022, about $4 billion of that is in Environmental Services, but we take up any hazardous waste short of nuclear from our customers. And so that is about 85% of the revenue comes from the United States, about 15% in Canada. That business is what makes the value proposition so compelling is that we own hazardous waste incineration, hazardous waste disposal, wastewater treatment, solvent recovery. So when you open up a can of solvent at home, you are actually generating hazardous waste. That waste needs to go somewhere. And usually, the EPA designs, when they label something as a hazardous waste, they say you have to do X with it. You have to incinerate it. You have to put it in a hazardous waste landfill. You can't put it in a dumpster. It can't go into the solid waste. So we, we're similar to the solid waste industry as we have landfills, like they have landfills, but a little different because what we pick up is hazardous waste needs to be permitted. We go through permitted sites. It needs to be -- the waste needs to be tracked through the network. And when we pick up a drum of waste at John's auto body shop, we need to track that waste all the way through the network. So it's a really unique story. It was founded 43 years ago by the name of Alan McKim. Alan still on our Board Chairman. He's also the Chief Technology Officer. He's still there every day. But recently, in as early as the end of April, I, as well as my Chief Operating Officer, got promoted to Co-CEOs. So we're new to this role here at Clean Harbors.

Great. Thank. And quick advertisement. Alan McKim is also an author, recently wrote about Doing The Doing which both me and Will have read, and I would suggest anyone who's interested in a Clean Harbors story, have a read. It's -- I like knowing the history of company and how they started. And...

Yes, it was a great book, and I heard pieces of those stories before. So it was really entertaining for me because I've only been there for a decade to kind of hear the whole story and how it all kind of fit together, and you can see how decisions that we're making even today were colored by things that happened 20, 30 years ago.

Yes. And so at least for me, it took away that the entrepreneurial drive within the...

Absolutely. Still in the whole company, really.

Yes. Yes, exactly. I guess I want to get started on a few big picture comments from you, Mike. Obviously, you're on the front lines on industrial waste, which sort of covers a large part of the industrial segment, lots of concerns about where the economy is going. So any comments about what you're seeing at Clean Harbors in terms of near-term industrial activity, outlook for growth relative to rising interest rates and people having some concerns about where the economy is going?

Yes, Jon. So we gave guidance a month ago, and we haven't seen any change in that. We see the pipeline still very strong. I read the same newspapers as you read around job cuts here, concerns there. We just haven't -- we haven't seen it. And the reason why I think that is because I do think that reshoring or shoring whatever you want to call it, is real. Now there's truth lives and stats in this world. But if you believe what you read, 350,000 manufacturing jobs are created in 2022, there's supposed to be 400,000 manufacturing jobs directly tied to reshoring or shoring. I think that's real. And that's driving waste into driving manufacturing to the United States and driving waste into our network. I say that because when we look at our pipeline, both on the disposal side, on the tech service side, as well as the industrial service side, we see these guys plenty busy. And I'm not -- again, you can say it's shoring or reshoring. You could also say that the supply chain challenge really, I think, put us the fear of God into a lot of customers because John and I were running a business, and he was a supply chain leader, and we had a near-death experience. I mean the world kind of stopped for a while. And so we need to have a plan B. That plan B can't be on a PowerPoint slide. It's got to be real. It's got to be a real business that we can ramp up if, if things slow down again. And so we've made a decision business-wise to move more manufacturing to the U.S. And obviously, they're building new plants. We're talking about the CHIPS Act and semiconductor industry. I get all that and battery, battery manufacturing. But it's also just adding shifts. So when we do our operating reviews, we look at the business and we say, geez, why are you guys up? And they say, well, this plant is going from 3 loads a week to 4 loads a week. And we ask them why it's like, well, they added a shift. And you're like, well, why do they do that? Well, they kind of like the a lot of reasons. I think it's because they're trying to manage their supply chain. They're trying to get closer to their customer. So they're paying a little more to kind of derisk that huge, that huge risk because I'm not sure China is any more stable than it was a year ago. I'm of the view that, that is just smart. And so what do you call it reshoring or shoring high prices of instability in Asia. It's just they're bringing more manufacturing to the United States. So even -- so we talk about recessionaries and we're not -- recessions are happening. We don't see it because we don't see it happening to our business. And so when you also when you think about like a Dow, for example, and they talk about job loss, well, that could be in Europe, that could be in Asia. I don't see it here because we're only in North America. So I'm of the view that this is a short-term catalyst and a long-term catalyst. I haven't seen any signs of slowdown. And if you read the book, you read Doing The Doing, you'd see that we've have had slowdowns before. We'll cut costs, we'll manage the P&L. We'll generate cash flows. If you look at the last 5 years of our history, even though we had a huge pandemic, our EBITDA continue to ramp up. Why is that? It's because we're very kind of cost focus. We're focused on driving profitability, driving margin improvement, even in an environment where we had this huge pandemic.

Yes. I appreciate that. It's interesting. I cover the [indiscernible] space, alt energy and environmental which I've always liked having to put on 2 different hats because of it shows something from a different lens or a different perspective. Almost the entire clean energy supply chain is moving to the United States having after having been outsourced to China over a long period of time and the term reshoring.

And I would say that battery manufacturing, we talk about lithium batteries, we like, but battery manufacturing, I mean, that generates a fair amount of hazardous waste. I mean Tesla is a very big client of ours, customers-wise. They're just looking at other customers. They're not moving the needle, but they're a customer of us. I think that other battery manufacturer, you actually thought about the manufacturing process, I'm sure many of you have, it's a very hot topic these days, that's generating a fair amount has its hazardous waste. That's good for us.

Which I was going to ask, how do you think, how do you feel about your physical footprint relative to where a lot of the expansion of manufacturing is happening? It's basically, if you look at the map at least for things like batteries, solar, things that we're really familiar with. Basically, Virginia down to Texas to Arizona, Basically, that's a lot of where they're going. Do you feel good about your asset footprint in that region?

So when it comes to hazardous waste, unlike solid waste. So solid waste, I know a little bit about that. It's who's the closest landfill. They win the work. They usually get the work because the transportation costs are so high. When you think about hazardous waste disposal, it's not as important. Not to say we have incinerators in Texas. We have incinerators in Arkansas. We have incinerators in Nebraska. So we have them there, but it's not as important as -- so the physical location in the footprint is less important in incineration than it is in maybe in the solid waste industry.

Yes. Got it. And then the other big picture topic I wanted to get to, and I do see your questions on the app, and we'll certainly go to the audience here for questions. The Vision 2027, right? There was a big number thrown out there, something like $4 billion in M&A over that time line. Let's talk about the pipeline, what's out there, what's businesses you're looking at geographically but also types of business. Is there the ability to execute on that over that time frame?

Sure. So Vision 2027, we had an Investor Day at the end of March. End of April, end of April, maybe it's not that. All right. Days are confusing. The -- we did end of March. We did the Investor Day. And we had -- in the slide there, we had a chart that goes from the $2 billion of EBITDA -- of the $2 billion going to -- excuse me, $5 billion of revenue going to $10 billion in revenue, and then $2 billion of EBITDA going to $4 billion of EBITDA and then there's cash flows from that. And the question that the John is asking is, well, geez, can you really do that? Can you execute on that? The purpose of Vision 2027 is to is as much about the strategy as it is about kind of how we're going to grow. What we want -- what we were concerned about, hey, we're new CEOs in the role. Are we going to make a hard left, are we going to pivot right. The purpose is we've been a growth company. We've been a growth company for 43 years. We've grown the business from 4 guys in a truck to a $5 billion of what Alan did that along with our help for the last few years. And we're going to continue that plan, that path forward. I'll tell you one thing, Jon, in 5 years from now, the company won't be $10 billion, maybe we'd be $9 billion, maybe $12 billion, I don't know, but it's really more about the strategy that we're doing, that we're going to continue to invest in our businesses, there is plenty to buy. Can we buy another incinerator. That's an open question. I get that. But there's plenty of things to buy there, and we're going to continue to be disciplined and patient with your capital. The other thing we want to say is because we're new CEOs, we want to show the reader that we're not going to be like just trying to take a hard left to make us [ flat ] because we're new CEOs who want to make it fast. We -- the purpose why we're here is to continue on that journey, not to take a hard left or hard right. And the purpose of Vision 2027 is to tell you that, that we've been growing well. We doubled the company in the last 5 years. So it doesn't seem crazy to double it again. Now I know it's a law of big numbers. It's harder to do that when the company is smaller, it's easy to double than it is now. There's plenty of things to buy, not just in industrial services and in oil, but across the network. Are they as big and as [indiscernible] needle movers, it's an open question. Can we do them all? It's an open question, but we are going to committed to that process. We think it's been -- we think we have the people, the processes, the systems, the management, the leadership to drive that, and we'll continue to do that. That's really the purpose of Vision 2027.

Great. And maybe a topic you've mentioned a couple of times, the new structure, the new co-CEO structure. Just comment on how that's going, sort of early days or like feedback culturally?

Yes. So we had our first Board meeting 2 weeks ago and it went really well. And I think that the Board was very supportive of the Co-CEO structure. I think Alan, it's hard when you've built the company, you're the founder, you're the guy, you're the vision. And now he's there, but he's not running it, and he's been very respectful and it's been very supportive of this structure. It was his idea to do this co-structure. He's very supportive of it. It's going really well. I asked Eric yesterday on a scale of 1 to 10, how do you think is going. He said 10, and I kind of agree with that, right.

10 out of 10.

10 out of 10.

Maybe dive into a little bit of details on the Industrial Services business. So I think one of the really sort of bullish thematics with Clean Harbors that investors have looked at is the potential to price on disposal hazardous waste, particularly post the Republic purchase of U.S. Ecology, you're relatively high -- sorry, high market share, I shouldn't say relatively, high market share in incineration. Can you talk about how pricing is looking at that and how you think it plays out over the course of time and customers have willingness to accept price?

Sure. So going back a few years, and I understand your question, it used to be on disposal assets. It used to price disposal assets. And we used to get 5% price a year. That labor and the trans GDP may be 2% or 3%. And so what's changing is that 2 things. First of all, as Jon said, there's been consolidation in the space, maybe a little more discipline in the space. And that's driven our ability to price kind of the actual disposal at a much higher rate. Some of that's due to inflation, some of that's due to our ability to kind of -- for our leadership in the industry to drive price up to cover our cost and to drive margin expansion in that area. But more importantly, in Industrial Services, when we become now, used to be 4 players, now there's 1. And what's happening, I believe, is that the scarcity, it's always scarcity of disposal assets, but the scarcity of people and specialty equipment has driven that -- our ability to drive price up. The other thing, Jon, I'd say on Industrial Services, going back a few years when we were $400,000, $400 million, $500 million, a much smaller player and the company is much smaller back a few years ago, if we were to lose a large industrial services job, ExxonMobil, a Shell, a [ CICO ], I mean that would really hurt. We'd be sitting on this stage, explaining what happened and why we lose it and what's happening to our profitability. But because we're bigger now, it's allowing us to be bolder is to be like we are going to continue to drive price, and we're going to walk away from customers if they don't meet these price points. And because we're larger, we can do that now because it's okay if we lost it. Therefore, if we lost to be like, oh, what happened, we lost all this profitability. We're going to have to figure it out. Here, it's like, hey, if we lose 1 or 2, that's a good thing. That's a good thing, not a bad thing because we're losing -- we're going after lower margin businesses, the lower margin project work. And I think that, that type of action, that type of commitment to driving price up has allowed us to drive that price up. And so as we gave guidance in 2023, we didn't assume that we'd be able to get a lot of that. And that's -- I think that's actually doing better as part of why is ES doing better than if oil business is struggling a little bit, why is ES is doing better. Part of that is our ability to drive price in that business at a much higher level than we thought. And we think those margins over the long term, get from the low to mid-teens to the high teens. That's not crazy talk, but I think that's very real. And I think that we -- our ability to drive that price. We've seen that in this 2023, and we'll see that going forward.

Got it. Maybe while we're on the topic of certainly incineration. Can you talk a little bit about the dynamic of captive incinerator?

Sure.

Are you seeing those close down or also the potential to possibly partner with Clean Harbors and keep those running but may be operated by you in the future?

Yes. So captives are a great growth opportunity for us. I think that as customers continue to realize that they're not the natural owner of these incinerators as compliance and regulation, and CapEx, finance, continue to increase. More and more companies are going the way of a 3M where they close their captive and give us the waste. It's hard, Jon, to kind of acquire those. Not to say there -- it's not impossible, but those permits are usually designed for that site to take that waste in that site and not take waste outside of that site. But it's harder to do that. But certainly, I think that captives closing over the next few years is going to be more and more out there. We know them all. We're -- they're our customers because they close for turnarounds, and we take their waste during that 2 or 3 weeks turnaround. So we know all those customers. We continue to have conversations about the math and showing the math and how we can do it cheaper than them than they can do it themselves and try to prove that to them like we did with 3M, and I think that's a long-term catalyst for us. M&A on those harder to do, not impossible, but we need permit modifications on their end, so that they can take waste for -- outside of that plant. Otherwise, what are we really doing?

Right. Got it. So the specific permits on the captives are restricted to the captives production.

That's exactly right. So that's what makes a captive a captive is that they're there, but they can only take waste that's generated on that site. So that makes it very difficult for them to kind of convert that. Permit modifications are tricky.

Any examples of permit modification? Or is that...

It happens. It certainly happens. It's harder to do. It's harder to do. And I don't think that -- I think that we've had more success because we do that every day than them, it's a side project.

Got it. Got it. And maybe moving on to the call it, the other side of the business, for the Safety-Kleen business.

Sure.

Can almost call 2022 a Goldilocks year for that business?

I would agree with that.

Now you're rolling over that, right, which is some difficult comps. So just an update on the Safety-Kleen business, how things are looking relative to what you thought at the beginning of the year.

Yes. I find it interesting, Jon, that, that oil business is now down from where it was. It's $300 million in 2022, now it's in the low 2s and stock's way up. It's like it almost feels like we're over earning and now they're awarding us but not over earning, which is -- that's still earning, right? But anyways, the oil business, we're managing a spread. We're taking dirty motor oil, primarily from the passenger car industry, from the automotive industry, rerefining it in our 8 rerefineries and selling it off as base oil. And that business is managing a spread. What happens is the oil prices come down. There's a little bit of a spread contraction as oil prices go up, which has happened in 2022. As Jon said, it was kind of a Goldilocks year. Oil prices went way to heck up, the diesel prices -- I mean, base oil prices were way to heck up and we were able to manage that input cost pretty well, and that was a $300 million year. In our 5-year model, going back to Vision 2027, we only have it getting back to $300 million, a little under $300 million over the next 5 years. We're only getting back to 2022. I think that business is -- people think it's -- I answer a lot of questions in rooms with people like you on the oil business. It's 20% of the business in 2022. It will be 15% in 2023. It's a small piece of the puzzle. We think -- people think it's really volatile. And we know we're going collect 250 million gallons of base of dirty motor oil, and we're going to sell 150 million gallons of base oil. That's what's going to happen in this business. And so I feel like it's pretty steady. Maybe if oil prices are going down, it's in the low 2s, oil price is going up. It's in the mid- to high 2s and even 3 when it goes way up like it did in 2022. But I think that business is pretty stable. And I think that becomes less and less relevant as the ES business continues to grow. I think it's a good ROIC. It's a good business. It doesn't take a ton of capital. It provides a fair amount of cash flows. I think it's a pretty good business.

Got it. And bigger picture on that Safety-Kleen business and I'm on and off and I'm going to do a lot of alt energy work, and people often ask me about energy transition measured in the years, measured in decades.

Sure.

I would say, it's measured in generation. These things take a long time to happen -- a lot of transition so large. But one of the ways we get a lot of questions on Clean Harbors is about obviously, EVs don't use motor oil. And so while broadly across the United States, EV penetration is going to take a long time to likely ramp. But within pockets, particularly where we are in the suburbs of [ Boston ] to that Safety-Kleen business, you might see it go a little bit quicker. How do you think about that impact over the next 5 to 10 years of higher EV nitration that safety business?

Well, certainly, we get that question a lot about what's going to happen with EVs and is there going to be no more motor oil. I mean the passenger car business is only a piece of the motor oil we generate. We get a lot of industrial oils, things from anything with the [ crane ] case. We pick up that dirty more oil. And that's not going to change. And I honestly believe guys that the path to electrification is going to be measured a lot longer than you think. I mean I spent -- last week, I was in -- I was in Texas for 3 days doing some site visits and that's a couple of customers and so forth. I didn't see many [indiscernible]. I think it's going to be pockets, yes. Overall, it's going to take a lot longer. And I do think that -- I do think let's play it out a little bit. Let's say that we -- in Massachusetts, where John and I are from, maybe that goes faster. All those gas stations have the same types of permits we do. And those tanks in the ground need to be cleaned and removed. Well, that's our business model on the ES side. Our field service business does tank cleanout for gas stations every day. And so that would be a huge catalyst for us if 1/3 of the gas stations in Massachusetts were to close because those permits, you need to remediate that tank. That tank needs to come out, it needs to be cleaned, it needs to be -- and God help if there's any leakage in the soil around it, also dirty, that's a huge project for us. A long-term catalyst for us. So -- and also, as I said earlier, battery manufacturing is a huge catalyst to trade. It's a fair amount of hazardous waste and you need a solution for the batteries. And so we're in the hazardous waste disposal company. Lithium is a hazardous waste. And so we will have that solution to those problems, and that will be another long-term catalyst for us. We take lithium today. We don't do a lot with it because it is highly unstable. But we do take it and we're thinking about solutions and how to do that more intelligently and safer. And so I'm of the view that electrification of cars, okay, maybe that hurts the oil business over 20, 30 years, longer than probably anyone's investment horizon today, but also battery manufacturing, battery disposal. And building out a grid, I mean, all that stuff is driving, driving incremental growth in our Environmental Services business. And I think it's part of the reason why we're having such a good year in the ES business is because of that.

Yes. I always like the closing gas stations or at least the remediation of that ground as sort of a structural into that...

I mean, the oil and gas business, 8% of the U.S. GDP. So think of not just the gas stations that you see in the corner, maybe those don't close fast, right, the pipelines, the tanks and all that, that's what we do all day. We do that stuff all day long.

Yes. They're basically just convenience stores anyways to tell all the gas stations that to earn money. They're not selling oil but would be happier to have oil...

That's exactly right.

I mean, much happier and if you want to stop buying charge and then be here a little longer and spend more money, and that's all those stations...

That's right.

But while on there, one of the questions on my little app here figured out talking everyone around the SK business, is there a scenario where the SK oil re-refining business could be divested while retaining the branch business?

So the challenge with that idea, so I get that question often. So we show it in our financial statements as a separate business. We've got a separate leadership, it's run separately, it's all very all truthful. When you think about a branch, John and I live in the Southeastern Massachusetts and there's a branch in Weymouth, Massachusetts. In Weymouth, there's a Safety-Kleen branch. It's got the branch business and it's got the oil business. Now those reports are 2 different people, but under the same permit. But we were to somehow close to starting to sell the oil business or divest the oil business, you would need to get on a permit for that, for that oil business, and that's very hard to do. So although we report it as a separate business, and we manage it as a separate business, it's all under that permit. And so for our 180 locations where we have SK branch business and SK oil business, we would have to find that. Now maybe in some state that wouldn't be too terrible like Texas perhaps. But in Massachusetts, it'd be impossible. It'd be very difficult to get a new permit for that business to have a new branch that when we sold that business, it would go somewhere to be a separate business. So although you can make an argument for the sense of that, I think it's very hard to do practically. And the other thing I'd say is that, hey, we've been in the recycling business for a very long time. We cut a lot of solvents. We recycle all those [indiscernible] and solvents to re-recycle. We've been taking oil for a long time. We just -- now it's bigger and we've separated it out. So this is a waste, just like in Massachusetts that has its waste, in California that has it's waste, a couple of other places. It's a regular waste in every state. We are in the waste disposal business. This is part of us. We think it's a great business. It's throwing off a lot of cash. We love it.

And then the next question I have, which if you can work in is going to be about PFAS. If you can work in artificial intelligence into the answer, we'll have to double...

That goes 200 tomorrow.

So there's obviously been some pretty big settlements recently in these [ suburbs ] around that. A lot of those things I believe a lot of those funds are going cleanup. Can you talk about the Clean Harbors opportunity around PFAS?

Sure. So the focus has been so far on water. And so the remediating water. And certainly, we take the filters that come out of that, but that's a pretty small part of the business. We don't deal in PFAS water. We have -- we do some water remediation. It's more industrial water, not drinking water. So right now, the focus has been on, hey, we've got to clean the drinking water. We can't PFAS in the drinking water, and the settlement and the regulation has been enforcing that. What we think is coming later this year is more regulation around soil. We are the solution. We've proven to ourselves and to the marketplace that we are the solution for PFAS contaminate soil. And so that can go into our incinerators and we've prove that in multiple incinerators that we take that dirty dirt and incinerate that safely. And so you think about that for a second. There's 2 challenges, like, well, geez, Mike. It's used for firefighting foam. It's supposed to -- so how can it be burned in an incinerator and that's just nonsense. If 1,800 degree, if not a 400-degree fire. Secondly, it is we've proven that we could do, get it remediated out of the air through six nines, so 99.99999% clean coming out, which is we've proven that. We've had a third-party study validate that. We had another third-party study to validate their work. As PFAS becomes -- the challenge with PFAS and why there hasn't been a huge catalyst for us today is people don't know how clean is clean and they're not required to do it. As we sit here today, contaminate PFAS oil is not a hazardous waste. We do think later this year, it becomes label as hazardous, they give out regulation as to how clean it a minimum contaminate level MCL, you'll read that in the newspapers. It needs to figure out how clean needs to be clean and then we figure out what we do with that dirt. We still get some of that today, some of it today because people are trying to get in front of it, especially in like airfields and military bases, where they've been doing firefighting drills using that foam for a decade. It's all of -- we know that, that's super contaminates we've been taking. Though we talk about the Alaska job, that public information. We cleaned that job up. We did some work in other places to do that whether there's firefighting foam, but there's other areas where it's not as obvious where we think there's a long-term catalyst. So the second question you have on PFAS is that, okay, what are you in -- where you're going to place incinerators. Our incinerate is kind of full, then we talk about a backlog of incineration capacity. And so where are you going to put all this dirt even if you get all this dirt, what are you going to do with it? The answer is that what our Chief Operating Officer, would say, now my partner, Co-CEO, would say is that this is a [ common impact ] on the kiln. If we're at 85% incineration capacity or 89%, we can put that on top and get into the low 90s pretty easily because it's usually what the problem with waste streams, it gets too hot. Is there too much BTU value. And so that soil actually has a very common influence on the plant. And would -- Eric would call it stocking stuffers on top of the plant. So it is an area where we could take more soil especially containment. So it'd be just an easy win at a price point that makes sense that it would be -- we put on top and the incremental EBITDA for the company.

Got it. And there was a slide deck at the Analyst Day was something like 99.9999999, a bunch of 9s that went...

That's pretty important, right, because we got to prove to our customers that we can't be not contaminate the environment with that.

Yes. And I'm glad you called sort of nonsense on the sort of the thought of, hey, isn't this stuff used to put out fires, how can you incinerate it because I'm almost certain that was my first question.

I've gotten that question before. And I'm like well, it's all different. It's not a pizza oven...

Do we have questions here live in the room? Otherwise, I have a few more as well as there's some more on the app in a [ year ]. So if there's questions live in the room, feel free to raise your hand. They have a mic to pass around. Wave me down if you do in the future. But another topic I wanted to discuss is kind of moving to the other side of the business is how you make your money and then how you spend your money. We talked a little bit about M&A before. But coming in the Co-CEO role, and I always think it's CEO's job in a lot of ways, is capital allocation.

Sure.

You have lots of good problems. You have a lot of free cash flow. You have debt that's, as an analyst, I'll say maybe too low, right? So you underlevered lots of free cash flow. How do you think about capital allocation between M&A, share repurchases -- to actually add maybe some more leverage in the future in a more normalized rate environment. So lots in there. But I just want to get your broad thinking...

Yes, these are high-class problems, Jon. These are high-class problems that we're generating cash and kind of how we deploy it. I would say that -- I'd say a few things. First of all, I'd say that we've been able -- I think we've been able to deploy capital pretty intelligently. And whether us as CEOs or us as the CFO and the Chief Operating Officer, we are part of the decisions to make those calls as to where to deploy the capital. And so I think we, as an organization, have made pretty good decisions with your money. The way I think about it is that it's got to make financial sense and it's got to make strategic sense. And unless it meets both those bars, we pass on it. And we don't talk about business we pass on. We pass on a lot of businesses because we want to make sure that we can see the value and the return that you see. So John talked about leverage. Leverage, obviously, as a CFO leverage is critically important to me. My background is in accounting and auditing. If you don't know me very well, I'm a pretty conservative person. I think Alan, if you read his book, he's been over-levered and almost lost the company a couple of times because it's been -- because of leverage. And us view -- our view of 2x to 3x levered, that's a good place to be. I'm not -- I think, given higher interest rates, it's probably a really good idea to be in that area in this time of the year with higher interest rates, it's costing a lot more to hold that debt. Would I do at 4x lever to do M&A? I sure would. But I don't want to see a clear path to get that back down. I'm not going to be 5x, 6x levered. I think some of our customers -- some of our competitors in the general space have had problems with leverage and still have problems with leverage and how they solve that. We're never going to have that problem at Clean Harbors because we definitely don't have the view because of Alan and his influence and how I approach it. Now Eric approaches it. It's a balance sheet needs to be managed appropriately because what happens is that when an opportunity comes up to buy a company, we provide a value towards the seller, so we can close it quickly. We understand it. We're patient. We get the balance sheet, we can do it quickly. That's a competitive advantage that we really like and we will continue to lever. So I don't can see ourselves like again, part of the Vision 2027 is to talk about leverage. And I don't see us taking a hard left turn and becoming 5x, 6x levered, and buying all these great assets. I don't see that. I see that us being smart and prudent, doing intelligent, being patient, and not ending need to make a splash and taking deals that come to -- because what's going to happen is that some customers may not -- some companies may not come out so good if there is a recession coming out, and we may be an opportunity to pounce on it. If you look at our history, we've certainly -- when there's been a recession, that's when we bought, when we buy assets.

Got it. And I'm going to make an unfair sort of analogy or comparison here with that's what sell-side analysts do -- the group stocks you're often compared to Waste Management, Republic as being the 2 large cap names.

Sure.

Both returned about 9% of revenue to shareholders every year, 4.5% on the dividend, 4.5% in share repurchases. I'm taking away from this and certainly from the Analyst Day a bit, you think you're still in growth mode.

That's fair.

And you want to invest capital in growing the business. Is that fair?

Yes, I see that. Certainly, we have a buyback plan. We still have over $100 million available. We certainly have talked to our Board about getting a new one. I don't think that's going to be a problem. I think people see that there's value there in buying back stock. Is it going to be a major point of our strategy? I don't think so.

Yes. And there's almost this virtual. And obviously, the shares have performed very well. This is almost virtuous cycle that can happen for a little bit. The higher the shares go up, the less reasonable share buybacks look to doing M&A, right?

It's fair. Yes, that's math, that's right...

Because that's just are the 2 almost like Waste Connections is probably a good example of that. Casella has companies that has almost incentivized to do M&A -- share repurchases or through the year. Question on the updates, comments about how you think the HCP and Thompson acquisitions are going?

Yes. So we bought that -- we bought HydroChem HPC back in late 2021. October 8 was the actual acquisition date 2021. I would say that -- and we tried to talk about this at Investor Day is that our integration strategy is pretty aggressive. When we buy the company, we put them on our systems, our processes, and that creates a lot of change management, and that's hard. And so year 1 is normally not great in our world because of all the changes. We lose people, people -- they don't want to deal with all the change, they get other opportunities to leave, they leave. And so we do a lot of work trying to kind of keep it going. And hydrogen actually did pretty well Year 1, given all the change we put it through, Year 2, I'm actually really seeing a good growth in that business, probably better than our expectations in Q1, better than our expectations in Q2. I'm really excited about that. As I said earlier, I was down busy with some industrial customers this week, meeting with the team. I'm really bullish on that business. Thompson, we only had it for a month or 2, on target, on track. I really feel good about Thompson. Thompson was -- it didn't have a lot of overlap. When you think of HydroChem and Clean Harbors, we were 1 and they were 2 or vice versa. So there's a lot of overlap that created a lot of -- some customer loss, a little painful. Thompson doesn't have that. I think that's going to be a much better, a much better kind of tuck-in for us, and selling our services using our people. I mean, they had a super high turnover rate because what would happen to be the turnaround season went over, and they would just let everybody go. Well, we can keep people busy with inside work, on-site work. And so that's going to help us from a synergy standpoint.

Perfect. And then the other question on the app, which I'm sure you've been feeling this for quite some time. And I'll sort of lay it out this way. It's about labor, labor retention, ability to keep people pricing pressure on that. Is there's -- I've heard this from several people, and I think probably right, even in an economic recession, the idea of the blue-collar labor market getting loose is very unlikely. I mean just around the...

That's right.

The contractors talk about we got half the business, we don't have enough electricians to do stuff that there's just -- that's a very small pool of labor doing those jobs. So can you just talk a little bit about how Clean Harbors is dealing with that?

Yes. So you're right. So we're trying to get a plumber to come visit you is a little tricky these days. It has been for a long time, and it probably will stay that way. I think the challenge for us and where we've been successful is retaining people. I think that's really, in my mind, offering better benefits, offering kind of an opportunity generated over time, giving people a career path, those types of things has been, in my mind, much more successful than can we hire -- we've been hiring more people, we hire a ton of people. And I don't have the data in front of me, but we're kind of -- we hired thousands of new people in 2022. We're doing a good job this year. But in my mind, the path to success is lowering the voluntary turnover. Keeping -- we hired John, and John does a good job keeping, John up the curve, keeping John there for a few years, that makes them safer. That makes it more compliant. He's established relationship with our customers. He can sell more services. He understands how it all works. And it provides a career pattern for him, that's the difference. I mean Eric Gerstenberg, my Co-CEO, started as a driver. Alan started the company. I mean, there's a path here for people, and we're proud about that. I started as a controller. And so there's a path here for people. We want to advocate that. And we -- and my goal is to drive the voluntary turnover number down and keep the people we have here longer, I think, is a key to our success.

I know some of the municipal solid waste companies talk about, particularly with drivers, accidents and safety incidents drop like 70% after the first year and drop by another 50% in the next 2 years like is there a similar dynamic?

Yes, I'm not sure it's as dramatic. I think our safety standards are a little better than the solid waste guys just because of what we're handling, right, and the importance of compliance and safety. But you're absolutely right, Jon, is that injuries happen, incidents happen, accidents happen, first 6 months, first 12 months of an employee's time at any of the industrial companies.

Right. Great. Last chance in the room, if you have any questions. Otherwise, I'm going to give the final word to you, Mike. But before I do that, I think the angle of the business remediation around closing gas stations qualifies you to come to the UBS Energy Transition Conference in Deer Valley in January. You're going to have a ball. It's a great conference, and I like to ski. We'd love to have you out there. Officially on the record as -- provided. Final words for you.

I think that -- well, thanks for that, Jon, and thanks for having us here, and we'll see about January so how that works out. But I do think that the company is in great shape. I mean, the challenges that we're facing today are kind of high-class problems. And I think the management team is well positioned to deal with those, and I really feel bullish about the company and about our prospects from taking it from 150 where we are today up to 200, up to 300. I really feel good about that.

Great. We'll end it there. Thank you so much for being here.

Thank you, everybody.