US Ecology, Inc.

Good morning and welcome to the third quarter 2020 U.S. Psychology, Inc. earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Eric Jarrett, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining us today. Joining me on the call this morning are Chairman, President, and Chief Executive Officer Jeff Thieler, Executive Vice President and Chief Operating Officer Simon Bell, and Executive Vice President of Sales and Marketing Steve Welling. Before we begin, please note that certain statements contained in this conference call that do not describe historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Since forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such statements. Factors that could cause results to differ materially from those expressed include but are not limited to those discussed in the company's filings with the Securities and Exchange Commission. These risks and uncertainties also include but are not limited to statements regarding the continued impact of the COVID-19 pandemic on our business, the macroeconomic impact of specific end markets in which we operate, and our expectations for financial results for 2020. Management cannot control or predict many factors that determine future results. Listeners should not place undue reliance on forward-looking statements, which reflect management's views only on the date such statements are made. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events, or otherwise. For those joining by webcast, you can follow along with today's presentation. For those listening by phone, you can access today's presentation on our website at www.usecology.com. Throughout yesterday's earnings release and our call and presentation today, we referred to adjusted EBITDA, adjusted earnings per diluted share, cash earnings per diluted share, and adjusted free cash flow. These metrics are not determined in accordance with generally accepted accounting principles and are therefore susceptible to varying calculations. A definition, calculation, and reconciliation to the financial statements of adjusted earnings per diluted share, cash earnings per diluted share, adjusted EBITDA, and adjusted free cash flow can be found in Exhibit A of our earnings release. We believe these non-GAAP metrics are useful in evaluating our reported results. We would also like to point out that our third quarter results include contribution from the NRC group holdings acquisition that closed on November 1st of 2019. Throughout this presentation, we often refer to NRC group holdings as NRC. We have also provided data on standalone U.S. ecology basis, which is referred to as legacy U.S. ecology. Similarly, for standalone NRC data, we refer to that group as legacy NRC. This disaggregation is an attempt to provide increased transparency and understanding of the underlying business.

With that, I would now like to turn the call over to Jeff. Thank you, Eric, and good morning, everyone. We appreciate you all taking the time to join us today and hope you and your families have remained safe during these uncertain times. Before I have Eric review the third quarter financial results, I'd like to update everyone on how U.S. Ecology is navigating the current business environment. For those that are following the webcast presentation, please direct your attention to slide five. Despite continued COVID-19 headwinds, our third quarter results were substantially improved across most of our business units, resulting in an 11% sequential improvement in revenue and a 17% improvement in our adjusted EBITDA from the second quarter of 2020. The resilience of our overall business, diversification of our services, and execution by our exceptional team compounded by the capital preservation initiatives implemented earlier this year, resulted in an 8% improvement in year-over-year free cash flow. Overall, the company delivered total adjusted EBITDA of $45.4 million, an increase of 9% over prior year, on revenues of $238.1 million. Year-to-date, our adjusted free cash flow of $51.5 million is already ahead of the adjusted free cash flow generated in all of 2019. We ended the quarter with $102 million of cash and approved net debt position from the beginning of the year and repaid $30 million of debt, proactively drawn off our lines of credit at the beginning of the pandemic. Several bright spots emerged this quarter as industrial activity shows signs of life. Leading the way is our collection of services-based business, which generated solid top-line growth and EBITDA margin expansion, helping to offset some of the current industrial softness impacting the waste side of the business. Moving on to slide six, legacy U.S. ecology field and industrial services revenue was up 10%, led by strong execution in our small quantity generation, emergency response, and total waste management services. With higher activity levels, this segment also saw adjusted EBITDA margins expand 59 basis points, which helped offset the negative operating leverage experienced on the waste side of the business due to COVID-19-induced manufacturing slowdowns. Our legacy U.S. Ecology Environmental Services segment revenue declined 12%. during the quarter, reflecting a 15% decline in base business revenue, partially offset by an 8% growth in our event business, as project-based shipments remained strong throughout the quarter. Sequentially, base business was down just under 1% from the second quarter of this year, as we saw trends stabilize and start to improve. Event business was up 13% sequentially. Overall, Legacy U.S. Ecology saw a revenue decline of 6% compared to the third quarter last year, but a 10% sequential increase from the second quarter of 2020. Legacy U.S. Ecology's adjusted EBITDA was down 8% when excluding the $2.6 million of business interruption proceeds recognized in the third quarter of 2019. Sequentially, Legacy U.S. Ecology's adjusted EBITDA was up 7% from the second quarter of 2020. Taking a look at Legacy NRC results on slide 7, NRC contributed $81 million of revenue, which was up 15% sequentially from our second quarter. NRC revenue was down 21% from the prior year, primarily resulting from energy waste services business. NRC generated adjusted EBITDA of $9.7 million in the third quarter, a sequential improvement of 87%. NRC's field and industrial services business saw revenue and EBITDA growth both sequentially and compared to the third quarter last year on increased COVID decontamination, industrial, and weather-based emergency response services, as well as synergies. With With revenue in our energy waste disposal business down 30% sequentially from the second quarter, we have worked diligently to take further costs out of the business while adjusting our go-to-market strategy to focus on non-drilling waste opportunities. The resulting EBITDA loss of $766,000 in the third quarter was a 60% improvement over the second quarter of this year. We believe we have right-sized the business for future quarters with some remediation projects and a slight pickup in rig count. We believe we have found bottom. We continue to expect this business to be breakeven to slightly positive on an adjusted EBITDA basis for the full year of 2020. Turning to NRC integration activities, net synergies are ahead of our $7.2 million 2020 plan for the first nine months of the year. While we still have plenty to do, cost savings are coming in better than anticipated, and revenue trends are improving in the third quarter and beyond. As a result, we now expect NetSynergies to be in the $10 million range for 2020. Other integration activities have not slowed, and we remain on track for our project plans, despite COVID and related travel restrictions. When you look beyond the quarter to year-to-date results, the resilience of our business model is even more evident. In the first nine months of 2020, in the face of a global pandemic, our legacy U.S. ecology business delivered the same level of revenue when compared with the prior year. This translated into us achieving adjusted EBITDA on our legacy U.S. ecology business that was down just 3%. from the same period last year. This solid performance underscores the successful execution of our multiyear strategy to grow our services-based business to support a robust treatment, disposal, and recycling network. When looking at NRC, we are still in the early stages of realizing the benefits of this combination. While COVID-19 and the related impacts on the oil and gas markets have more severely impacted this business, the non-energy services have begun to show the benefits of the combination in our third quarter. Synergies are trending ahead of our first-year targets, and the outlook remains promising. Before I turn the call over to Eric, I want to touch on some of what we have been doing with regard to environmental, social, and governance initiatives. While we published our first Sustainability and Citizenship Report in 2019, We recently formed a separate corporate responsibility and risk committee of our board of directors to enhance our environmental and social reporting. Updates to our sustainability report are being worked on as we speak and are expected to be updated in early 21. Being a responsible steward of our environmental resources and promoting a sustainable future is at the heart of what we do every day at U.S. Ecology. Since 1952 and for the last 68 years, we have been building U.S. Ecology into a leading North American provider of environmental services where we address the complex waste management needs of our customers and do so with a focus on the environment, our people, and our communities. Historically, we have not had the metrics to be able to communicate our efforts to stakeholders, and those are being worked on as near-term initiatives. On the environmental responsibility front, while we primarily manage inorganic waste at our landfills, we don't generate landfill gas emissions typical of solid waste firms. We are looking to target reductions in vehicle emissions by lowering the carbon footprint of our fleet through things like routing software and improved route densities. Our fixed facilities are not high-energy users, so the numbers there are already pretty low. Also, over the last five years, we have been upgrading our infrastructure to be more energy efficient as part of our normal growth in capital investments. We are also deploying capital investments to expand our recycling capabilities and technologies and help our customers reduce their overall waste generation. As to social responsibility, our team members are the most important part of U.S. Ecology. We realized this long ago that it is our people that drive our success. Taking care of our team members is a top priority and it begins with a laser focus on health and safety. While we generate safety results that are better than industry standard, we continuously invest in our safety programs and are always looking to make process modifications in an effort to drive to zero incidents. Our social responsibility efforts have created a special culture here at U.S. Ecology that is built on inclusion, respect, protecting the environment, and continuous improvement in everything we do. We invest in our team members with a total rewards program that includes incentive plans, top-tier medical benefits, and learning and development programs. This has led to a highly engaged workforce and contributes to our overall low voluntary turnover levels. In the coming years, we will continue to develop and expand on our ESG reporting with a near-term focus of developing goals for the future reporting years. We look forward to updating you on these efforts to make a lasting impact on our environment, our people, and our communities. And with that, I'll turn it over to Eric. Thanks, Jeff.

As I cover the detailed financial review, I'll be discussing consolidated results that include NRC before delving into the legacy U.S. ecology standalone results. Starting with consolidated results on slide 10, revenue for the third quarter of 2020 was $238.1 million. Revenue for the environmental services segment was $112.4 million in the third quarter of 2020, compared to $122.2 million in the third quarter of 2019. NRC contributed $5.1 million of ES segment revenue in the third quarter of 2020. The Field and Industrial Services segment delivered revenue of $125.7 million in the third quarter of 2020, compared to $45.2 million in the third quarter of 2019. NRC contributed $75.8 million of FIS segment revenue in the third quarter of 2020. Total gross margin was 26% in the third quarter, down from 34% in the third quarter last year, primarily reflecting the addition of NRC, which is largely a service-based business. Treatment and disposal margin for our environmental services segment was 38% in the third quarter of 2020 and reflected a loss of $2.2 million from NRC's energy disposal and services business. Gross margin for our film industrial services segment was 19% in the third quarter of 2020, compared to 16% in the third quarter of 2019. Selling general administrative spending, or SG&A, was $49.9 million and included $19.3 million for NRC, as well as $1.6 million in consolidated business development and immigration expenses. This compared to SG&A of $28.8 million in the third quarter last year, when excluding $4 million of business development expenses, and nearly $500,000 of a favorable property insurance recovery that was not repeated in the third quarter of 2020. Adjusted earnings per share was 25 cents in the third quarter of 2020, compared to adjusted earnings per diluted share of 75 cents in the same quarter last year. Cash earnings per diluted share, which adds back the per share impact of the amortization of intangible assets to adjusted earnings per diluted share, was 46 cents in the third quarter of 2020, compared to 84 cents in the third quarter of 2019. Consolidated adjusted EBITDA was $45.4 million in the third quarter, up 17% from the third quarter last year, reflecting $9.7 million from NRC. This was partially offset by an 8% decline in the legacy U.S. ecology business, when excluding $2.6 million of business interruption insurance recoveries recorded in the third quarter of 2019. Shifting to legacy U.S. ecology results on slide 11, revenues were $157.2 million in the third quarter of 2020, down 6% from $167.4 million in the third quarter last year. Our environmental services segment revenues were down 12% to $107.3 million on a 24% decrease in transportation revenue and a 10% decrease in treatment and disposal revenue. As Jeff mentioned, the primary contributor to the decline in our treatment and disposal revenue was a 15% decline in base business, partially offset by an 8% increase in event business in the third quarter of 2020 compared to the third quarter last year. Legacy U.S. Ecology Field Industrial Services revenue was $49.9 million in the third quarter of 2020, up 10% driven primarily by higher revenues in our small quantity generation, emergency response, and total waste management business lines, partially offset by lower revenues in our industrial services and transportation and logistics service lines. Gross margin for the legacy U.S. ecology business was 31% in the third quarter, down from 34% in the third quarter last year. Our environmental services segment treatment and disposal margin was 43% in the third quarter of 2020. Treatment and disposal margin for the third quarter of 2019 was 44% after backing out $2.6 million in business interruption insurance recoveries related to prior periods. Gross margin for the Legacy U.S. Ecology Field and Industrial Services segment was 16% in both the third quarters of 2020 and 2019. SG&A for the Legacy U.S. Ecology business was $29.5 million compared to $33.3 million last year, excluding business development expenses, and a property insurance recovery in the third quarter of 2019. SG&A was $28.9 million in the third quarter of 2020, down from $29.8 million in the third quarter of 2019. Legacy US Ecology's adjusted EBITDA was down 14% to $35.7 million for the third quarter of 2020, compared to $41.5 million in the third quarter last year. Looking at the first nine months of 2020, For Legacy U.S. Ecology on slide 12, revenue was $454.8 million, up slightly from $454.2 million in the first nine months of 2019. This was driven by 6% growth in our field and industrial services segment, partially offset by a 2% decline in our environmental services segment compared to the first nine months of 2019. Adjusted EBITDA for Legacy U.S. Ecology was $100.1 million for the first nine months of 2019. down from $103.1 million for the first nine months of last year. Turning to slide 13, we exited the quarter with a solid balance sheet and strong liquidity. We had cash on hand of $102 million and net borrowings of $724.6 million at September 30, 2020, which was an improvement over our net borrowings at both December 31, 2019 and at June 30, 2020. Our operating cash flow increased to $83.2 million in the first nine months of 2020, up 30% from $64 million in the first nine months of 2019, which drove our adjusted free cash flows up 50% to $51.5 million compared to $34.2 million in the first nine months of 2019. Looking at our overall debt position at September 30th, 2020, we had just over $100 million of available capacity on our revolving line of credit, after paying down $30 million in the third quarter of 2020, in addition to $102 million of cash on hand. Our debt is structured such that there are low required payments on our term loan B facility, which does not mature until 2026. This structure gives us ample flexibility at a cost that is averaging approximately 3% in cash interest. The leverage ratio under our revolving credit facility was four times at September 30, 2020, well under the 5.25 times covenant level for the quarter. Overall, our solid liquidity and strong balance sheet allow us to continue to operate the business with a long-term focus and position us for a strong exit from the pandemic and related market conditions.

With that, I'll turn the call back to Jeff. Thanks, Eric. Moving to our outlook slide on slide 14, despite the ongoing and challenging conditions we are all facing, we expect continued improvement as we look to capitalize on the economic recovery. Though uncertainty remains, we are reestablishing our business outlook for 2020 that was withdrawn earlier this year. We are continuing to see data that gives us confidence that better times are ahead of us. First, our services-based business led the way in the third quarter with strong growth. We believe a service-based recovery is the first indication of business condition improvement. Further supporting this, industrial production metrics have continued to strengthen through October and are now at levels we have not seen for many years. This is encouraging and makes us optimistic we will see improving base business conditions in the coming months as we naturally lag production in the wayside of the business. Even our energy-exposed businesses are seeing slivers of life. with additional investment returning. As we continue with the recovery, we remain prudent with cost controls and deployment of capital. We continue to limit non-sales-related travel and other discretionary spending, although we have resumed hiring, particularly in operations and within our services-based business. Capital spending is expected to come in between $60 to $64 million, down from the initial range of $90 to $95 million we had set out in February. All in, we expected our 2020 full-year performance to produce total revenue between $911 million and $931 million. adjusted EBITDA between 168 million and $175 million, which translates into fourth quarter adjusted EBITDA between 41 million and $48 million. Free cash flow should end the year between 61 million to $65 million, up 29% at the low end of the range from 2019 levels. and adjusted EPS should range between $0.36 to $0.50 per share. The obvious risk to our guidance would include a new round of shutdowns like we experienced in April and the inherent risk that event business timing slips into 2021. I am so very proud of the entire U.S. Ecology team as we work together across regions and service lines to further integrating our businesses while ensuring the safety of our people and meeting the needs of our customers. Today, we are in excellent shape to navigate these challenging times and create a sustainable future for U.S. Ecology's team members and stockholders, ready to capitalize on opportunities for growth as industrial economies continue to recover. With that, operator, can you open up the call for questions?

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Michael Hoffman with Stiefel. Please go ahead.

Thank you. Hi, Jeff, Eric, and team. Hope everybody's well out there as well. When we think about the base business, where did September end relative to the whole quarter? And how is that setting us up for 4Q? And when you think about the volume changes and you look at the customer base, you know, Were the volume trends consistent with the improving industrial production activity?

Yeah, so, Michael, on that, let's just kind of talk holistically about face business. So in the third quarter, it was a little choppy. It started out actually pretty improved in July, got soft in August, and rebounded in September. When you kind of look at our industrial customer base, You know, I know that a lot of our customers were, I call it retooling, but they were trying to get to a new, you know, working environment with their teams and processing. And they were processing at lower than full capacity levels. And so that kind of translated in. When you look at base business, you know, kind of throughout our whole network, Where we ended up seeing softness, no surprise, was the Midwest as autos started to recover in the late second quarter and into the third quarter and didn't really probably hit full stride towards the end and the related businesses around that. The Gulf Coast also saw, you know, some challenging conditions on the Bayside. And a lot of that is due to, you know, the activities level down there. As we do a lot of work with refineries, which are heavily populated down there. And it's not just upstream energy that's being impacted. It's the full chain. And so we've seen those customers producing less volumes. They've also been entrenched with their own capital preservation initiatives along the way. And so that has created some additional softness during the quarter. As we look kind of forward, view, I would expect that we would see improving conditions sequentially on base business as more waste flow starts flowing through the network. We are seeing a lot more improvement in our end markets across the board. And as we move into 2021, I would imagine that we'll even see some of the the more challenging sectors starting to resume some spending and investment in those areas. And so that's kind of how we think of the base business right now moving forward.

The other thing I'd add, Michael, just as a reminder is, you know, that lag that we typically experience in our business in terms of when the waste shows up. You know, when you see the upticks in ISM and production, which are great and they're good indicators – And if you look over history, we're about a two-quarter lagger from that. I think this cycle, what's unique is, you know, things dropped off much faster than they have in other cycles for obvious reasons. But I think we're still kind of in that lag period before we'll start to see those volumes really start to pick up along with the trends you see in ISM.

Okay, fair enough. And I'm not asking for guidance for 21, but do you have a sense of how we should think about cadence if based on the patterns you're seeing as we look into 21? What's the pattern through the year?

Yeah, if you're talking year over year, you know, we had a couple of really strong quarters in Q4 of 19 and Q4 of – or not Q4, Q1 of 20. So I would imagine we'll still be in negative environment for the next couple quarters. And then as we cycle – you know, the first round of COVID shutdowns, we'll start seeing incremental improvement. As far as sequential performance, you know, really it's too early to tell on how that's going to be. I do expect some improving conditions sequentially with natural seasonality in our base business.

Okay. And then the The strength of field industrial services, when you pull out and you look at the legacy, you were flat margins. But I have to believe that there's a mix issue there, too, that's getting incrementally favorable over time. And then you get to add in the benefit of NRC and what those businesses bring. I mean, on the field industrial side, they're actually a better margin, I think, than your legacy business.

Yes, that's correct, Michael, and you're right. As you look at consolidated margin, gross margin, you see that 19% versus 16% last year. And then you look at legacy U.S. ecology, and it was 16% in both. So pretty flattish. So the NRC businesses will, and as we integrate and we're seeing more and more traction on this, be an uplift in FIS margins because it tends to be higher margin business. On the legacy U.S. ecology side, I still feel really good about where we're heading. We saw another really strong quarter in SQG, particularly on the retail side. So retail was up over 50% in Q3 this year versus last year. So we continue to see a good trend there. Emergency response business on the legacy U.S. ecology side has also been up significantly. some of which are a portion of which is the COVID decon work that we're doing through the legacy U.S. ecology facilities. But overall, I think our margin profile with NRC and even in the legacy U.S. ecology business continues to improve and grow.

Okay. And so to that end, on the decon side, what are we thinking about as far as the headwind of that comparability? I mean, in a In a perfect scenario, you don't want to be doing any decon because we've gotten back to sort of life as normal, but maybe there's going to be some like recurring, but how do we think about what that headwind is going into 21?

Yeah, Steve, do you want to give that a shot and I'll supplement?

Well, right at the moment, we're continuing. Actually, it's been increasing a bit over the last few weeks. I don't exactly know where we're going to be next year, but at the same time that we're doing the COVID work, as things recover, we'll be doing additional hazmat-type work. There will be more trucks on the road and more activities going forward. But the other area that we expect would come into the mix is we've been mostly working at retail stores and places that have been open. Things like colleges and universities have not been open, and we expect there could be some additional work. new work on the COVID front as things reopen there. That's just speculation in a lot of ways because we don't know for sure.

And then do we have a dollar amount that we're talking about?

Well, we've done roughly $15 million year-to-date or through the third quarter on COVID work, over 3,000 responses, and it's been a better clip over the last, Six weeks than that. So I don't know. It just depends, Michael. I mean, I don't think anybody can tell you what's going to happen with us next year for sure. If it stays the way it's been, then we'll continue doing COVID cleanings. If something changes, that will obviously change that market.

Right. And you broke up when you said dollar amount. Did you say $18 million?

$19 million.

$19 million. Okay. Thank you.

Yep. Through September, Michael, we're just over $19 million of revenue on almost 3,000 projects.

Got it. Got it. And then, again, not looking for a hard guidance, but is the sense that 2021 becomes your groundhog year and basically you repeat 2020's guidance, sort of? That's sort of the underlying gut of where this is settling out?

Yeah. Well, we're not really prepared to talk about 21 right now. We're still going through our budgeting activities, Michael. If I understood your question right on Groundhog is are we expected to be delivering the same guidance for 21 that we did in February of 20? Yeah, I don't see that happening for this next year. I think that we're going to be dealing with this pandemic into 21, probably for at least the first half of 21, if not longer. And I still think there's too much uncertainty to give a guidance range on that. But to say that we're going to be at pre-COVID levels with still the headwinds in the energy sector, I don't see that as a plausible scenario.

Okay. Yeah, I had to get a Bill Murray context in here somehow. Thanks. Thanks, Michael.

Our next question comes from Tyler Brown with Raymond James. Please go ahead. Hey, good morning, guys.

Hey, Tyler. Hey, Jeff, so I appreciate the guidance, but I was hoping to maybe break apart the EBITDA into the key buckets. So, At a high level, how do we kind of deconstruct that low 170 midpoint? Is it something like zero in NRC energy, maybe something like 30 in NRC, call it non-energy, and then maybe, you know, 40, 45, 140 to 145 million in legacy ecology? Is it something like that just broadly?

Yeah, Tyler. So the energy waste piece, yes, we're – assuming that that's going to be break-even-ish from an EBITDA perspective for the full year. So that's that piece. On the NRC side, yeah, I think your number's in the right range, U.S. ecologies. So I think you're in the right ballpark.

Okay, yeah, I was just looking for broad ballpark. That's helpful. And so I think, Jeff, you mentioned something a little bit about non-energy waste streams. Can you just talk about what those streams might be? Are those energy landfills permitted for different types of waste, or what kinds of waste might those be?

Yeah, so the landfills that we take primarily took drilling waste. I mean, that was the core market. But they also took remediation waste from, I'll call it closure of pads, closure of pits, things like that, spills, accidents. Well, we're not necessarily seeing the spills and accidents to the same level, but they do happen sometimes. But there's a lot more remediation of pits as the wellheads are getting closed down under the regulatory framework. And so that is where we're seeing some incremental volume coming in right now. And to be honest with you, that's kind of where some of the core competencies of U.S. Ecology comes in because we're always competing for event business along the way. And so this is very similar to event business, and we can structure it. and be more laser-focused on it. And so that's what our teams are working on today. We've been seeing that coming through in the third quarter. They're coming through in the fourth quarter. I imagine this will still continue to be a bigger part of our business going forward until drilling starts to return. Okay.

Okay, that's interesting and helpful. And then I may have missed it, but what is the general expectation for events in Q4? Because you talked about it being potentially – you know, slip into 21. But what is kind of in the implicit guide, I suppose?

Yeah, so sequentially, I would expect event business to be down. And the reason for that is twofold is one, just the natural cycle of coming through kind of the consumer construction process. We also had a couple larger accounts that are going into their slower phases. But we have seen in our guidance right now, we have seen several projects shift to 2021, and they are predominantly due to COVID-related activities. They're not canceled. They're still going. They're going to move next year on that. And so that's just a normal risk in our business. And, you know, we're sitting here on November, what, 6th? And, you know, there's really eight weeks. or a little bit less than that, of the year. So if there is any weather delays, any shifting, any of that stuff, that can materially change the guidance based on how strong the event business has been.

Okay. Okay. That's helpful. And then, so, Eric, on slide 18, I really appreciate the slide on the covenants. So if I just kind of roll the implied – you know, Q4 EBITDA, it seems like trailing 12 EBITDA is pretty consistent. So are you kind of expecting that your debt ratios are maybe either at or close to peak? I mean, obviously, we don't know what's going to happen next year, something crazy could happen. But is that kind of the base expectation, at least right now?

Yeah, I'd say that's the expectation right now. The struggle, and typically, if you look You know, Q1 is one of our – we have a bit of a drag sometimes in working capital, Q4 or Q1, depending on how the year goes. So that might have some impact. But I think for Q4, I think from a leverage perspective, we'll probably be about where we were for Q3, maybe up a titch. And then Q1 probably similarly. And then I would – again, assuming things go the way we expected, that we start to then trend back down.

Right, right, okay. And then just a couple quick questions on cash flow and capital allocation. But how should we think about, you know, I know you're obviously not giving much guidance on 21, but one thing is somewhat in your control is CapEx. So does it feel that that's going to jump back to call it pre-COVID type levels, call it that $90 million range? If I was looking at my notes, it seemed like 21 was going to be a higher – US Ecology legacy year on cell development anyway, and then it was going to drop down in 22. But I'm just kind of curious, any just initial thoughts on CapEx next year?

Yeah, so that's a good question. So right now, what we're planning for is You know, we see the road to recovery with normal economic cycle, and we've gotten more confidence around that, given that we've lived with this pandemic for the last eight months. And I think that that's why we reestablished guidance. So when we start looking at where we're at, what cushion we have on our covenants, you know, we know that business levels should be up next year at some level. I would imagine that we will return to around that $90 million-ish range of capital. You are right. There is a lot of that that's tied to cell development and landfill construction, and that's critical. We need to do that. Some of the spend is part of a multi-year effort that actually may carry over into 2022 at our large Michigan-based landfill, very difficult construction there. So I imagine that we'll be around that $90 million next year on there, but it also depends. It really depends on how we're seeing the overall – outlook for 2021 at this stage, and we will adjust accordingly on that. We will never, never skimp on the landfill side of things. We cannot run out of space. We've got to keep those up and operational.

Yeah, absolutely. And then just my last one, and this is a little bit broader question about just capital allocation, but number one, do you intend to reinstate the dividend? And if so, what do you need to see? And number two, where should we think about free cash flow being allocated over the next few years? Do you anticipate it just kind of getting swept to pay down debt? Do you see acquisitions? Just any broad thoughts there I think would be helpful.

Yeah, so a very, very good question. So the crystal ball I'm looking through right now, which is murky at best, is we do intend to reinstate the dividend, but facts and circumstances will determine whether we reinstate a dividend or go to some other capital fund. return of capital to shareholders, share buybacks, things like that. But that's our intention. It's really dependent on when we're comfortable operating in our covenant level that we'll get adjusted in 2022 back down. So those are factors that come in. If we get back to pre-COVID levels of cash flow expectations, You know, we will continue to pay down debt, but we would then start looking at potential acquisition opportunities and other that. We will continue to always invest organically in ourselves. We take advantage of that every single year, and we're still doing that. We did it this year, even under the capital constraint conditions that we've done. We're looking at a lot of great things next year that are planning to use up some capital. And, you know, where we try to get a lot of mileage out of is our maintenance side. And so if we can get some more duration on the maintenance side and get by and reinvest that in growth opportunities, that's what we try to accomplish. Okay.

Well, thank you. Very generous with your time. Thanks. All right. Thanks, Tyler.

As a reminder, if you would like to ask a question, please press star, then one. Our next question is, It comes from Jeff Silder with BMO Capital Markets. Please go ahead.

Thanks so much. I just got a couple of quick ones, hopefully. In your prepared comments, you talked about potentially the energy waste side of the business finding a bottom. I'm just curious what makes you confident to make that statement. What are you seeing?

Well, we're actually seeing, despite the sequential decline, through the quarter, we saw improvement. We saw opportunities with remediation investments that were occurring that were creating volume. And then when you just start looking at what our customers are doing, although it's very small in numbers, we are starting to see rigs and activity returning to the market. If you listen to some of the larger players that continue to consolidate down and what their plans are for next year, even though that they are restricting overall capital, The areas in which we operate in, they continue to be bullish in, and they're continuing to have indicated that they plan to make investments in there. And so that's why I think we've found bottom on that. The fact is, is we'll see how it all translates into the overall oil markets in the coming months and quarters.

Okay, that's helpful. And you talked a little bit about some of the geographic areas, you know, in terms of trends there. You mentioned the Gulf Coast. I think you have more exposure in Texas than Louisiana, if I remember correctly. But I'm just curious, have you been impacted by the hurricanes at all, either positively or negatively?

Yeah, you know, fortunately our facilities and our people have not been materially impacted by the hurricanes, and that's been a blessing for U.S. Ecology on that. As far as business goes, there has been some incremental business on emergency response, but it hasn't been a needle mover. I think that a couple of the hurricanes that went up through Louisiana, you know, we saw some incremental volume on that. on it, but there hasn't been a needle mover there from that perspective, but those do happen from time to time.

Actually, most of our work we did hurricane was over in Florida due to Sally.

Yeah, kind of forgot about that. There's been so much help going on since then, but I appreciate that. All right, thanks so much for the call. All right. Thanks, Jeff.

This concludes our question and answer session. I would like to turn the conference back over to Jeff Dealer for any closing remarks.

Yeah, I'd just like to thank for those that are attending today and hope you stay safe through these unprecedented conditions and look forward to updating you at a conference in the near future or at our next quarterly call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.