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spk01: Good morning and welcome to the third quarter 2021 U.S. Ecology, Inc. Earnings Conference Call. All participants will be in 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 telephone keypad. 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.
spk04: Good morning, and thank you for joining us today. Joining me on the call this morning are Chairman, President, and Chief Executive Officer Jeff Beeler, 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 the 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 immediate impact of the ongoing COVID-19 pandemic, the macroeconomic impact of specific end markets in which we operate, and our expectations for the financial results for 2021. 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 this morning's earnings release and our call-in presentation today, We refer 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 therefore are 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. With that, I'd like to turn the call over to Jeff.
spk05: Thank you, Eric, and good morning everyone joining the call today. I would like to begin by thanking all of our colleagues who are working hard keeping people and the environment safe, including our emergency response teams that are actively involved in cleaning up the aftermath of Hurricane Ida and finishing up the oil spill in Southern California. Responding to these and other emergencies is part of our core mission to provide critical environmental solutions to protect human health and the environment. Turning to our third quarter results, for those that are following the webcast presentation, I'll direct your attention to slide five. As expected, we saw sequential improvement in revenue and profitability across our three operating segments in the third quarter, despite ongoing delays in our event business, along with continued supply chain, cost inflation, and pandemic-related challenges. Our waste solution segments revenue increased 7% in the third quarter over last year. Base business for our waste solution segment increased 11% compared to the third quarter last year and was up 2% sequentially from the second quarter of this year. The increase was driven by continued improvement in fundamentals and a 13% increase in our landfill volumes. We saw broad base business improvements across most of our end markets during the quarter. Year-to-date, base business is up 5%. While we're on track with our target of base business growth of 5% to 7% for the full year, due to ongoing challenges with our industrial customers and what they're facing, we expect the base business to come in at the low end of that range, plus or minus a percent or two for the full year. Our event business for the waste solution segment declined 18% compared to the third quarter last year due to additional deferrals into 2022, a less favorable service mix as replacement projects were at a lower average selling price compared to the third quarter last year. This, combined with cost pressures, contributed to a decline in profitability and margin in the third quarter compared to last year. Turning to our field services, this segment saw and delivered solid growth of 5% despite a difficult comp with strong COVID decontamination work and large emergency response projects in the third quarter last year that were not replaced. Revenue growth was driven by our remediation and small quantity generation service lines led by a 14% increase in our retail services as we continue to execute and gain market share. With a recent award commencing in the first quarter of 2022, and the potential for additional growth from our existing retail customers, we expect to gain additional market share next year. Our field services growth was partially offset by lower transportation and logistics that has been hampered by supply and labor constraints and lower large-scale emergency response revenue. However, late in the third quarter and into the early into the fourth quarter, we responded to multiple large-scale ER emergencies, emergency response incidents for the first time this year, which is expected to be a positive for our fourth quarter. Like others in the industry, we are facing labor constraints resulting in higher subcontracted work as well as higher inflation-related costs, including transportation, materials, and supplies, which resulted in lower EBITDA and margin compared to the third quarter last year. To help mitigate the impact, we are focused on managing the costs we can control and adjusting spot pricing and surcharges while we prepare for more significant price increases in 2022. We believe that we will be able to pass through these costs through pricing over time. Our energy waste segment had another strong quarter of growth and delivered results ahead of our expectations with a fifth consecutive quarter of improved EBITDA and EBITDA margin. These improving results were driven by increased activity in the Permian and Eagleport basins and resulted in revenue doubling from the third quarter last year and resulted in EBITDA of $3.5 million. Total EBITDA for the quarter was $45.4 million in line with the third quarter of last year. We are encouraged with the growth generated from our recurring revenue in our base business, field services, and energy waste segments. was able to offset some of the challenges we are facing, including the lower large-scale ER emergency response and event business, a less favorable service mix, and continued labor and inflation challenges. We remain confident that our business fundamentals are strong, and we are seeing improvements driven by an industrial recovery despite ongoing supply chain disruption and labor challenges that many companies are navigating. We believe growth opportunities will accelerate across our service lines as port congestion subsides and more people return to the workforce. On the labor front, we are seeing labor conditions improve with increased applications and the highest recruiting rates of the year. As we enter the final quarter of the year, we expect sequential improvement supported by continued growth in our recurring business, the start of several sizable event business projects, execution on several large scale emergency response events and continued recovery in our energy waste business. As such, we expect the fourth quarter will be the strongest quarter of the year. We expect project deferments experienced this year will benefit 2022 and combined with expectations for continued recovery of the industrial sector next year, we believe we'll be well positioned for growth in 2022. Before I turn the call over to Eric, I want to review some key priorities initiatives that our teams are working and executing towards that we believe will drive some longer-term value. First, we are in the midst of advancing several permit modifications across our network that will open up more service and waste opportunities. To that end, we are focused on expanding our radiological capabilities, mercury waste treatment options, and growing our thermal capabilities to increase our addressable market, internalize more waste, and thereby limiting our dependence on the backlog incineration market. Next, we are leveraging recent technology advancements including digitalization and software to help increase business and drive efficiencies in our operations. For example, our digital marketing efforts have generated a 300% increase in our lead generation this year. Our investments in AI software has generated a 30% increase in stops per day in our retail program with the installation of this technology in our fleet. We believe further efficiencies will be realized as retail customers adopt these technologies, including a new sorting process in the back of the retail stores. We also recently launched a new lab-packed platform program known as LPX, that will improve in-field efficiencies, reduce training cycles for technicians, and deliver improved accuracy and real-time data to our customers. Further, we also continue to deploy organic investments to support both our service offerings and sustainability initiatives. Some of our larger investments this year include the construction of a new container management building in the eastern part of the U.S. to support our growing retail and LTL business. We are in the final stages of deploying a second aerosol recycling unit in the Midwest, which we expect will be fully deployed and operational in the first quarter of next year. This aerosol unit will open up additional opportunities to internalize high volume waste streams generated from our services group. On the sustainability front, we have successfully piloted a new container reconditioning system that allows us to recycle and reuse containers within our operations. We expect to have a production run rate of 100,000 containers by the end of the year, and we anticipate this will continue to grow in future years, eventually opening up opportunities to provide refurbished containers to our customers. As part of our overall ESG strategy, in 2021, we set out to quantify the amount of greenhouse gas emissions throughout our operations and establish reduction goals. As we have discussed before, our fleet operations represents our largest source of direct greenhouse gases as our landfills are inorganic and do not generate methane gas. We have established a goal to reduce our direct emissions by 30% by 2030 through upgrades to our fleet, use of renewable fuels, and other improved route efficiencies. We are also exploring the feasibility of integrating electric vehicles as well as other alternative fuel to our power units into our fleet. We have established a goal to demonstrate by 2025 that our recycling businesses, such as our aerosol can recycling, glycol and oil recycling, and metals recovery, minimize the environmental impacts from new production of many carbon-intensive materials and thereby eliminate the generation of greenhouse gas by three times the direct emissions produced by our operations. Finally, we are well positioned to take advantage of the emerging PFAS market with a wide variety of capabilities across our network, including thermal, Class I deep well, RCRA permitted subtitle C landfills, and wastewater treatment options, all included as options in the EPA's guidance. In fact, during the third quarter and continuing into the fourth quarter of this year, we have seen several large PFAS jobs where customers are choosing our secured solutions to address their environmental needs. We expect further opportunities in this area as regulations are formalized and additional funding is secured for cleanup activities. With that, I'll turn the call back to Eric.
spk04: Thanks, Jeff. Starting with consolidated results on Flight 8, Revenue for the third quarter of 2021 was $257.2 million. Revenue for our waste solution segment was $115.2 million for the third quarter, up 7% compared to $107.2 million in the third quarter of 2020. This increase was driven by a 5% increase in treatment and disposal revenue and a 25% increase in transportation revenue. As Jeff mentioned, the increase in treatment and disposal revenue was due to an 11% increase in base business partially offset by an 18% decrease in event business compared to the third quarter last year. The field services segment delivered revenue of $131.6 million in the third quarter of 2021, up 5% compared to $125.7 million in the third quarter of 2020. The increase was primarily due to growth in our remediation, small quantity generation, and industrial services business lines. partially offset by lower revenue in our emergency response and transportation service lines. Revenue for the energy waste segment increased to $10.4 million, up from $5.2 million in the third quarter last year. The increases in revenue, as well as our cost control initiatives implemented in 2020, resulted in an EBITDA margin of 34% compared to only 2% in the third quarter last year, and the fifth consecutive quarter of improved EBITDA and EBITDA margin. Total gross margin was 25% in the third quarter, down from 27% in the third quarter last year. Gross margin for our waste solution segment was 34%, down from 39% in the third quarter of 2020. Treatment and disposal margin for the waste solution segment was 40% in the third quarter of 2021, down from 43% in the third quarter last year, reflecting lower event business, a less favorable service mix, and cost inflation, partially offset by a 9% increase in total waste volumes disposed. Gross margin for our field services segment was 17% in the third quarter compared to 20% a year ago due to a less favorable service mix, labor constraints, higher subcontracting work, and cost inflation in materials and transportation. Selling general and administrative spending, or SG&A, was $47.7 million in the third quarter of 2021, down from $51.1 million in the third quarter of 2020, which included $1.6 million in business development and integration expenses. Excluding business development and integration expenses, SG&A decreased 5% in the third quarter of 2021 compared to the third quarter last year. This decrease was primarily related to lower incentive compensation and lower insurance costs. Adjusted EBITDA was consistent with the third quarter last year at $45.4 million. We generated adjusted free cash flow of $14.9 million in the third quarter of 2021, down from $16.8 million in the third quarter last year. This decline was a direct result of increased capital spending during the quarter of approximately $9.7 million compared to the third quarter last year. We had cash of $71.4 million and $62 million of available capacity on our revolving line of credit at the end of the quarter. Net borrowings were $685.9 million at the end of the third quarter, and our leverage was 4.6 times down from over 4.7 times at the end of the second quarter. Turning to our business outlook, as included in our release this morning, we are revising our 2021 full-year guidance as shown on slide 11. We now expect 2021 adjusted EBITDA to range from $158 million to $167 million. down from our previously issued guidance of $165 million to $175 million. For adjusted free cash flow, we are fine-tuning our guidance to be between $42 million and $54 million. Adjusted earnings per diluted share is now expected to range from 22 cents to 41 cents, compared to our previous range of 37 cents to 60 cents. Revenue is tracking towards the higher end of our estimates, And we're increasing the lower end of our guidance range from $940 million to $960 million, with the top end of the range remaining at $990 million. To dive a bit deeper into our guidance revision, the primary drivers of the downward revision are continued deferments of event business into 2022, softer event and base business due to ongoing headwinds as industrial production remains below pre-pandemic levels, hampered by continued transportation and labor shortages, as well as inflationary pressures on the cost side. These headwinds were partially offset by lower incentive compensation in our revised guidance range compared to what was assumed in our previous guidance range. While these factors are impacting our outlook for 2021, our business fundamentals remain strong. Base business continues to increase along with most of our recurring field services. Our project pipeline and waste solutions is strong and growing. However, deferments and delays are pushing this work into 2022. The good news is this is not lost work, and these projects are highly likely to commence shipments in the first half of 2022. With that, I'll turn the call back to Jeff.
spk05: Thanks, Eric. We remain encouraged by continuing improvements in the industrial sector as we move back towards pre-pandemic levels. While we continue to navigate short-term event business deferral, supply chain, transportation, labor, and cost inflation challenges, our competitive position remains as strong as ever, and we continue to leverage our network of irreplaceable facilities and service offerings to win business and position U.S. Ecology for the future. Our operational execution was put on display in October as we responded to the Huntington Beach, California oil spill where we quickly assembled and deployed over 1,000 responders using our vast independent contractor network. This rapid response mitigated the environmental damage in just a matter of days from this unfortunate event. As I highlighted earlier, we are executing on a number of strategic priorities that will further strengthen our market positioning capabilities that we believe will generate incremental growth in the future. Before I conclude and open the call up for questions, I want to once again thank and recognize our talented team across U.S. Ecology, particularly those team members that have been on the front lines responding to fires, hurricanes, oil spills, and accidents over the road. We have the best people and the right assets and remain a trusted partner uniquely positioned to meet our customers' needs. With that, operator, please open up the call.
spk01: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. 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. And our first question will come from Tyler Brown of Raymond James. Please go ahead.
spk07: Hey, good morning, guys. Good morning. Hey, lots of discussion this quarter on inflation. I think you guys made some helpful comments in your prepared remarks. But, you know, just how quickly do you think you can adjust pricing to offset the headwinds? I think you mentioned increases in spot rates with the rest kind of coming in 22. But I'm just curious, how much of the book is spot? And then can you just broadly, just to help us all understand, how does pricing work in some of the different parts of your business? I know there's a lot there, but that's my big question.
spk05: Yeah. Steve, do you want to take that and I'll fill in?
spk06: Sure. Yeah, so, Tyler, on the waste disposal business, we've already sent out notifications to our customers for January 1st increase. It'll be high single-digit increase on all of our base prices. treatment and disposal business. So that's in motion. The services, a lot of them are bid on a weekly basis, even though we have master service agreements in place with many of our larger generators. What happens is we'll go out and measure a tank, for example, for a tank cleaning, and then we'll bid that at the time with current costs. So not necessarily an increase needed. We just need to bid projects as we go forward. with our current rates. So that's in progress also. On transportation, we've been moving transportation rates up as we go each week, and we're doing a pretty detailed evaluation if we need further adjustments effective January 1. But we're pretty confident we'll be able to pass along a large percentage of – cover a large percentage of our cost increase with pricing. Not all of it will happen January 1st. It'll be overtime next year, but we feel very confident we'll be able to cover most of that.
spk07: Okay. Yeah, very interesting. So I just want to make sure. So on the base business, it could be up mid to high single digit next year pricing?
spk06: On the waste disposal side. And we do have on the services side, you know, some multi-year agreements which we're looking at to determine what our options are. But yes, on a big chunk of our base business, you're going to see a high single-digit increase.
spk07: Okay. Okay. That's extremely helpful.
spk05: And then – Yeah. So, Tyler, on that, you know, I think it's probably appreciated and known, but I'll just state it anyway. But we're in a unique time that we haven't really seen, you know, with the kind of inflationary trend, you know, not being very predictable in that front. And so – We're being prudent on how we go about looking at pricing right now, and these are our plans. But we are also waiting for, you know, what pricing increases that we're going to see. And we've had notifications from some. We have it from others in there. I think the good thing about our business, and I think Steve highlighted it there, is we have the ability to price our services through. And it doesn't happen overnight. It happens over time. But we have that ability there. And we've got to remain competitive in the marketplace in there. So assuming others are doing similar type things, then we'll be able to recover that pricing. It may happen over quarters as opposed to immediate during a quarter.
spk06: Okay. A lot of our agreements allow us to adjust on 30- or 60-day notice. So if we – put in our increase, let's say January 1st, and something unexpected happens in first quarter where we're seeing continued inflation, we'll still have the ability to make further adjustments as needed.
spk07: Okay. Very, very helpful. Yeah. Okay. Great. And then, Eric, on slide 13, the guidance bridge is super helpful. I think it's in the appendix. But I was curious about that $4 million positive delta from corporate. It looks like that is all incentive comp, which I get. But then if I scroll a little bit further, it looks like there's another, call it, aggregate $4 million from incentive comp at the segment level. I can't tell if that's $8 million total or if it's just allocations or what exactly I'm looking at.
spk04: Yeah, so if you look at the change from our guidance last quarter to the change this quarter, kind of at the midpoint, so from total EBITDA of 170 at the end of last quarter down to 162.5, embedded in that is about a little over $7 million, $7.5 million of incentive comp favorability just as as the results have come down the financial component of our incentive comp programs which is the majority of it obviously come down commensurately with it so it's about seven seven and a half million dollars in terms of the change from last quarter's guidance to the current guidance okay so big picture looking out to 22 which sounds like it should be better
spk07: So assuming that you get a 100% incentive comp accrual there, I mean, are we talking a $10 million type headwind next year to EBITDA, this big picture?
spk04: Yeah, I think that's probably a little high. I think it's more in the probably $7 to $8 million range.
spk07: Okay. Okay. But that's very helpful. So that would be a full accrual. Okay. Correct. Okay. And then on CapEx, I know it is early, but how should we think about it next year? It seems like maybe you deferred a little bit. You've got your fleet refresh kicking in. My notes have that you have a pretty large cell development year next year. Could CapEx be close to $100 million next year, or is that just way too much?
spk02: You know, Tyler, this is Simon. It really depends on a lot of the projects that we have going right now. We've got several large projects going at the moment. We are seeing some supply and materials shortages, which do delay schedules. So I can envision some of that shifting over to 22, which could push it up upwards towards the $100 million range.
spk05: Okay. And Tyler, I'll just add on that, you know, we're early in the budgeting cycle and, you know, it's We're working through that process as we speak right now. We're going to be prudent on our capital on there. We do know that we have the areas we will not skimp on is landfill development. And, you know, that's just a necessity. And we do have that going out the next couple of years. And we know that as a fact. The rest of it has some discretion to it. And, you know, depending on the outlook and things like that. But I think, you know, could it be $100 million? Yeah, it could be $100 million next year. It could be less, more in line with what we have this year or what we had planned for originally this year, about $90 million.
spk07: Okay, that's helpful. And then just my last one here, and this is just a big, broad question, but the leverage still remains relatively high, probably higher than you and most would care it to be. As the business improves, are there any things that you can do, whether it's monetizing pieces of the book, or is there anything – that you can do to help accelerate some of the deleveraging? I get that better EBITDA is going to be a big part of that, but is there anything externally or idiosyncratically that you could do to help there?
spk05: Yeah, so let's first talk high level at the leverage. Yeah, it's higher than what we would like to have, but I think it's important to note that we have a great credit structure that it's not a cash flow issue. It's more of a math issue. And so we do believe just through the growth projections that we have, we're going to definitely grow out of that leverage level at a good pace. As far as your question, are there pieces of the business that are whether it's non-core or things that could be monetized, we are definitely actively looking at that, and we have identified pieces of the business that we are evaluating today that could bring that down at a much faster rate.
spk07: Interesting. Okay. I will turn it over. Thank you. Thanks, Tyler.
spk01: Again, if you would like to ask a question, please press star, then 1. And our next question will come from Michael Hoffman of Stiefel. Please go ahead.
spk03: Hey, Jeff, Eric, Simon, Steve. Hope everybody's well out there. Eric, what's the dollar amount of project revenue that has to get done from a regulatory standpoint didn't get done in the original budget that could get done? I know there's a lot of maybe done in 22.
spk04: Well, I would tell you, if you look at the segment bridge for waste solutions in the deck, I mean, since last quarter's guidance, you know, there's about another $4 million of EBITDA that shifted from this year to next. If you go back to last quarter, there was about $3 million of deferrals there. So we're already talking EBITDA of $7, $7.5 million that shifted out of 2021 into 2022. I would say a large portion of that is regulatory-driven kind of event work and clean up their projects that will happen, that are going to come. It's just a question of timing, and they've deferred into next year.
spk03: And, you know, the regulators have been giving lots of extensions on various things. I mean, you all have lived with it on incineration. They're giving, you know, generators 30 and 45 day extensions on storage so is there a risk that some of the regulatory stuff is given extensions again because there's capacity constraints on volume being able to move around trucking and all that on on the on most of the stuff that is from the deferral standpoint we're highly confident that that's going to move next year i mean there's actually some of it
spk05: that is starting to ship, whether it's late November or December, that's just gonna carry over, and that's part of the deferral. So on that, we feel very confident. I think your bigger question is, if we go into 2022, are we gonna be living in the same environment of continued deferrals, delays, things to that effect? And unfortunately, in periods of uncertainty, yeah, that tends to happen more frequently. And we've seen it in our past. If you go back to the last couple cycles, we saw it as well in there. I will say the pipeline continues to improve. The teams are receiving lots of bids right now. All indications are there's going to be good opportunities next year. But as we will know a lot more when we release our full year outlook in February of next year. But right now, things are pointing in the right direction, and we think things are going to be more stabilized.
spk06: Yeah, Michael, a lot of the – What we're calling deferrals are government-related. We have one Superfund site that actually is starting next week. It won't impact Q4 too much by the time we mobilize and start shipping, but they ran into water issues when they mobilized a few months ago. That got delayed. There's not, in my mind, big risk on that one. We have one of the FUSRAP sites that's just kicking off in a couple weeks. It had to do with getting new work plans that delayed it three, four months. We have another job that has to do with freeway construction and a new bridge, and they ran into unexpected waste issues that delayed the project. We have a change of scope and the job's going to grow. That resulted in a delay. But there's not really much in the way of discretionary work that got delayed, at least on the big movers. Most of these were just schedule issues. combination of regulatory and scope problems or waste issues that they didn't expect.
spk03: Okay. Fair enough. And certainly, you know, there's evidence in the quarters results and decisions to do things that, like in field service. So, you know, the I guess what I'm trying to tease out of here is that, you know, okay, it's disappointing that there are these pressures and delays and there's deferrals, but there's evidence of activity happening across the breadth of the customer base that would suggest that you can't delay some of these things forever, even the discretionary stuff, and therefore stuff starts percolating. It's just hard to predict it. That's the problem. It's hard to predict it.
spk05: Yes, and absolutely it can't be deferred in perpetuity. So, yeah, we're seeing the same thing.
spk03: Okay. Back to teasing out what Tyler was trying to get on your ability to overcome inflation, cost inflation, given the timing of these price increases, the levels, is this by the end of a 1Q, everything being equal, but nothing keeps rising? It sort of has hit a level, and therefore you can account for it. You're caught up, or does it take longer to catch up?
spk05: I think it will take a few quarters in there, and we're assuming we're not going to see a stability in inflation next year. I think it's going to continue to increase. in the first half of next year. And so we may have to do some additional adjustments. But that's going to be all factored in into our outlook. But we will probably have some headwinds next year. But I think the key takeaway is we will be able to price through it. And that really goes to the scope of our assets and services and how critically needed they are.
spk03: Fair enough. And so since we have the model, you know, thinking about it as first half's got pressure, second half we start to level off and maybe even exit with some tailwind. Yes. Okay. And then if industrial production, which is currently being forecast to run between 3% and 4% next year, personally I think that's low, but say it is 3%, 4%, plus what you've just shared with us on price, Are we having a conversation in the base business that's back to a high single-digit growth rate? Is that the right way to think about it?
spk05: Yeah, we're still working through our budgeting process next year, but I think those are good, solid data points that you're pointing to next year on there. Our base business, as you're probably tracking in your models, is not still back to pre-pandemic level. I mean, during the quarter – You know, we were still, if you compare to 2019, we were down about 7%, you know, from 2019 to Q3. And so there's ongoing challenges out there. I will say if we can alleviate the bottlenecks, I know our customers are saying that if they can get labor and raw materials, they have a lot more demand and a lot more product that they would produce. That would generate more waste overall. So to me, that's the big challenge. critical area for our customers' perspective on understanding what volumes are next year.
spk03: Fair enough. And to that end, you know, another player in this market on a call suggested if they could have hired 2,000 more people in services-based work, they could have done 2,000 billable hours more work. I'm assuming you've got the same proportional issue, is if you could have found the bodies, you'd have done more work.
spk05: Absolutely. So we have 300 open positions, smaller scale than maybe the period you're referencing. But yeah, that is a headwind in right now. If we had those bodies, we would be having billable hours. In addition, there would be increased waste flows. There would be increased equipment charges. It goes on and on and on.
spk03: So this is a – you can't solve this question overnight, but what are the solutions to – we are structurally have a smaller labor pool which to draw off of. It's structural. That's the world we're living in. What do you do differently?
spk02: That's a great question, Michael. This is Simon. We're tapping into more networks, recruiting networks, kind of being more – expanding kind of our employee pool, if you will, looking at military partnerships, tapping into trade schools, even connecting with high schools when we can. We're also looking into internal programs to accelerate the time from interview to offer. continue focusing on our culture, things like developing driver committees to understand what's important to them, really focusing on the engagement side of making sure USC remains a fun place to work. We're looking to tap into our own team, staying on the driver front, incentivizing our employees to pay for their training to become CDL drivers. And we're certainly being aggressive in making sure that we're paying consistent with market rates. So really, it's a case of pulling every lever we can, making sure that we can continue recruiting best in class. But there's no doubt, there's been a sea change, and things are a little out of balance right now. But I will say, over the last three months, we have been making meaningful headway on the driver pool and other areas. So these efforts I'm describing, we're starting to see month after month after month when we're outpacing, you know, our gains are outpacing our losses, if you will.
spk03: Okay. And since I know you care about this, I was at Wade Lake and Three Dollar Bridge last weekend, and streamers were hitting brownies really great.
spk02: I wish I'd been there.
spk03: On the CapEx side, Jeff, $10 million. You made this statement. I want to just reaffirm. You were planning to spend more CapEx on landfill this year. You did it. You're going to do it again next year. This is all the Michigan build-out. Then we get this real nice drop-off in CapEx post-23. What was the $10 million, though, that you didn't spend? What didn't you spend it on?
spk02: Hey, Michael. This is Simon again. It's probably two big buckets. One is we're building out our capacity at our Carnes landfill. We planned on completing all of that in 21. Some of that's going to land in 22 as we build that out. And most significantly, we're doing some major investments with some replacements of some tanks, which includes a lot of steel, and we've seen delays. in getting the steel delivered, which has caused us to push that project in part into 22. So those two projects right there probably represent 70 or 80% of the deferral, if you will.
spk03: Okay. And then, Eric, there's a $10 million reduction in cash flow from ops in the cash flow bridge, but there's a smaller reduction in net income. So what's happening in cash flow from ops that increases that to $10 million?
spk04: Yeah, the biggest driver really is working capital. So as the fourth quarter becomes our strongest quarter of the year, we'll see some working capital drain on that as we exit the fourth quarter that hopefully will be some pickup next year in terms of working capital. So it's really a working capital story in terms of getting paid, especially as Jeff mentioned, we're responding and have some large scale ER responses you know, in October, early November, and, you know, those payment cycles tend to be a little longer as we're ultimately getting paid through insurance. Terrific.
spk03: All right. Well, I think the quality of the assets stood out. It's a challenging operating environment, but certainly the quality of the assets stood out.
spk00: Thanks, Michael.
spk03: Yep.
spk01: This concludes our question and answer session. I would like to turn the conference back over to Jeff Feeler for any closing remarks.
spk05: All right, I want to thank those that attended the call today. We'll be participating in some conferences over the course of November and looking forward to connecting with you.
spk01: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
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