Clean Harbors, Inc.

Greetings. Welcome to the Clean Harbors third quarter 2021 conference call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors. Thank you, Mr. McDonald. You may begin.

Thank you, Robin. Good morning, everyone. With me on today's call are Chairman, President, and Chief Executive Officer Alan S. McKim, EVP and Chief Financial Officer Mike Battles, President and Chief Operating Officer Eric Gerstenberg, and SVP of Investor Relations Jim Buckley. Slides for today's call are posted on our website, and we invite you to follow along. Matters we discuss today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements which reflect management's opinions only as of today, November 3rd, 2021. Information on potential factors and risks that could affect our actual results of operations is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revisions to the statements made in today's call, other than through filings made concerning this reporting period. Today's discussion will include references to non-GAAP measures. Clean Harvest believes that such information provides an additional measurement in consistent historical comparison of its performance. Reconciliations of these measures for the most directly comparable gap measures are available in today's news release, on our website, and in the appendix of today's presentation. And now, I'd like to turn the call over to our CEO, Alan McKim. Alan?

Thanks, Michael. Good morning, everyone. On slide three, you can see the strong contributions we received from both environmental services and safety clean sustainability solutions business. really imposing the highest quarterly revenue in our history. Within environmental services, we benefited from a consistent flow of high-value waste streams in our disposal and recycling network. We also benefited from a recovery in a number of service businesses in the quarter, particularly our industrial services business. The SKSS segment outperformed our expectations. Market conditions caused the re-refining spread to remain wide all quarter, and the team executed well in a disruptive environment. Product demand was robust throughout Q3 due to the industry supply shortfalls and growing interest in our sustainability offerings. Without question, our industry has had to deal with economic headwinds, including higher supply chain, labor, and transportation costs. We met those head on, putting in place a multitude of necessary price increases to offset the rising expenses. Adjusted EBITDA grew 10% from a year ago, resulting in a healthy 19.5% margin. Adjusted free cash flow was in line with our expectations, and we're on track to hit our new increased annual target. Turning to our segment starting on slide four, environmental service revenue grew 15%. Favorable mix in pricing in our disposal network, combined with increased activities in a number of our service businesses, including industrial and field services, really drove the year-over-year increase. Industrial services grew 24% as customers continued to move forward with large turnarounds to reduce the backlog of maintenance projects that have been deferred due to the pandemic. Our base business and field services, excluding decontamination work, was up approximately 25%. reflecting a more typical level of scheduled work and other smaller response jobs. As expected, adjusted EBITDA in the ES business segment was down from the third quarter of 2020 when we recorded a much higher level of government assistance and had significantly more high-margin COVID decontamination work. Backing out those items from both periods, adjusted EBITDA in the segment would have increased year over year. Government assistance programs in this segment totaled $1.1 million in this year's third quarter, compared to $11.2 million a year ago. Q3 of this year also saw significant inflationary pressures in third-party costs, and we partially offset those with higher revenue, pricing, and cost mitigation strategies. Incineration utilization was 82% up from the prior year. we expect to see a lower number of turnaround days in Q4 and should generate stronger utilization to close out the year. Our measure of that expected utilization and current demand for our disposal services is our deferred revenue. At 86.6 million as of September 30th, deferred revenue is at its highest level in our history. Our kilns remain busy as we finish out a very strong year. In Q3, a favorable mix of waste supported by our pricing initiatives pushed our average incineration price up 18% from a year ago. Some of that increase resulted from a temporary high-value waste stream project at our Canadian plant. But if we focus exclusively on our U.S. incinerators, our average price was up 11% in the quarter. Environmental remediation projects remain limited in Q3. With the resurgence of the Delta variant causing an uptick in cases in some regions, a number of customers pushed back cleanup projects and regulators eased completion deadlines. Though landfill volumes declined 5% as a result, strong base business drove a 17% increase in average pricing per ton. Revenue from COVID-19 decontamination work totaled $8 million in the quarter, somewhat higher than we had anticipated due to the uptick in cases, but still down significantly from $20 million in Q3 a year ago. Demand for our core safety clean offerings was positive in Q3. Pot washer services were $232,000 in the quarter. Moving to slide five, SKSS revenue was up 60% to nearly $206 million. as product demand remained robust throughout the quarter. Base oil and blended pricing were substantially higher, and volumes were stronger than the third quarter of last year when the pandemic negatively affected production. Adjusted EBITDA increased more than 41 million year-over-year, while margins topped 34 percent. These results were driven by the further widening of our re-refining spread and the return to more typical production levels. Improvement in the SKSS margin also resulted from the cost and productivity initiatives that we implemented as part of our organizational change that we made over the past year. Waste oil collections were strong, exceeding 60 million gallons for the first time since the pandemic began. Given the margin opportunities in base oil and the additive shortages that exist in the market, the percentages of blended products and direct volumes came in as expected. Turning to slide six, in early October, we completed the acquisition of Hydrochem PFC, a transaction we expect will contribute significant value to Clean Harbors in the coming years. We believe that the addition of HPC will afford us economies of scale in our network and with our combined resources. As a result, we expect to achieve at least $40 million of synergies after our first full year of operating HPC. And not included in that number are any cross-selling opportunities, which we are confident will be broad-based from this combination. The initial integration is proceeding smoothly. We're already starting to capitalize on HPC's leadership in industrial cleaning, specialty maintenance, and utility services, including its unique automation technologies. We've had a number of executive team gatherings as part of our Stronger Together branding campaigns. And for me, those meetings really have reinforced the natural cultural fit between our organizations, a cornerstone of making a large deal like this work. I'm excited about the opportunities ahead. Turning to slide seven, we're continuing to invest CapEx to grow our business, particularly on the disposal side. We completed a large investment in our Utah incinerator this year, following a number of permit modifications. And this investment enables us to increase our containerized waste throughput while managing waste within the total thermal capacity of the unit. As first noted on our Q2 call, we are moving forward aggressively with our plan to add a new incinerator in Kimmel, Nebraska. And on the M&A front, while the HPC transaction closed quickly, our planned acquisition of the Vertex re-refining assets is taking a bit more time to complete. We are cooperating fully with the Federal Trade Commission, which has made an additional request for information as part of the Hotspot-Rodino review. We're working through that request and now envision that acquisition closing in the first half of 2022. We'll continue to look for opportunities, whether those are internal or external, which will generate the best returns on capital. With our debt level and leverage up significantly as a result of HPC, We'll more closely evaluate reducing our debt going forward. We also intend to continue with share repurchases, although at a slower pace than we have in the recent years, given our other near-term capital priorities. So in closing, I'm extremely proud of what our team has accomplished, not just in Q3 REIT, but this entire year. We've executed sharply, capitalized on favorable macro trends, and we've benefited from a rebound in the industrial cycle which has really helped our services business. However, one area that I've been disappointed in recently is our safety. And after a strong start in Q3 in July, there were far too many safety incidences in August and September. Fortunately, all of these were minor, but whenever people get hurt, our performance is diminished. And we're really working with our operational leaders to reinforce our safety practices and ensure that everyone understands the benefits of our Safety Starts With Me culture here. We enter the final quarter of the year in great shape to close out an excellent 2021. However, we do see the challenges created by labor availability and inflation, as well as supply chain and transportation limitations. While we're not completely immune to those obstacles, our company is better positioned than most to address those costs through aggressive pricing, as well as cost mitigation plans and productivity gains. So I expect us to perform well here in Q4 and enter 2022 with a really strong tailwind in terms of market demand. So with that, let me turn it over to Mike Battles.

Thank you, Alan, and good morning, everyone. Turning to our income statement on slide nine, revenue increased 22% in the quarter, driven by top-line growth of more than $75 million in each segment. It is important to note that almost all that growth is organic. Adjusted EBITDA was 10% higher than a year ago, coming in at $185.1 million. Our EBITDA margin for the quarter was strong at 19.5%. On a percentage basis, SG&A was up 30 basis points from a year ago to 14%, largely due to higher incentive compensation as well as severance and integration costs. For the full year, using the midpoint of our guidance range that now includes HPC for a portion of Q4, we expect SG&A to be up in absolute dollars from the prior year, but flat to slightly down on a percentage basis. Depreciation and amortization in Q3 declined slightly to 71.5 million, in line with our expectations. For 2021, we now anticipate depreciation and amortization in the range of 295 to 305 million, which includes the impact of HPC. Income from operations increased by 25%, reflecting our 22% revenue growth, as well as benefits from our pricing strategies. Turn to slide 10. Cash and short-term marketable securities at quarter end were $711.5 million, up more than $140 million from year end, and up approximately $45 million from June 30th. Debt at quarter end was $1.55 billion, with leverage on a net debt basis of 1.4 times. That ratio obviously changed recently with the addition of $1 billion of seven-year term debt at LIBOR Plus 2 to support the HPC acquisition. Our weighted average cost of debt today, including our recently issued debt, is 3.3%, and we continue to have no debt maturities until 2024. Turning to cash flows on slide 11, cash from operations in Q3 was solid at $102.8 million. CapEx net of disposals was $41.7 million, up substantially from a year ago when the pandemic restricted our spending. Our CapEx spend this quarter included $2.1 million related to the new incinerator we will be constructing in Kimball. We delivered Q3 adjusted free cash flow of $61.1 million. For full year 2021, we still expect net CapEx in the range of $190 to $210 million even with the addition of HPC, and the initial spend on the new Kimbell incinerator that will likely total 6 to 7 million. During the third quarter, we bought back approximately 33,000 shares at a total cost of $3 million. We still have just over 160 million of our 600 million authorization remaining. Turning to slide 12, based on our Q3 results, the closing of the HPC transaction and current market conditions, we are raising our 2021 guidance. We now expect adjusted EBITDA in the range of $655 to $675 million, with a midpoint of $665 million. This assumes approximately $15 million of contribution from HPC in the quarter, reflecting up to $5 million in integration costs, including severance. Based on our year-to-date performance, here's how our full year 2021 adjusted EBITDA guidance translates to our segments. In environmental services, we expect adjusted EBITDA to be slightly down on an absolute basis from full year 2020. Higher margin decontamination work is lower than a year ago, and we are receiving approximately $26 million less in monies from government assistance programs in this segment. Despite these headwinds, this decrease will largely be offset by other factors, including necessary and extensive price increases, higher profitability in our incineration business, gains in our safety clean branches, field service, and industrial services, including the addition of HPC and Q4, and our comprehensive cost reduction measures. For SKSS, we now anticipate adjusted EBITDA at the midpoint of our guidance to grow more than 160% over 2020. Driving this result is the combination of our wide re-refining spread and the year-over-year increase in our production levels and collection volumes versus 2020. That level of adjusted EBITDA would also put us approximately 75% above what that segment delivered in 2019. As a point of reference, this segment received government assistance of $3.7 million in 2020. We expect less than half that amount this year. In our corporate segment, we expect negative adjusted EBITDA to be up mid to high teens from 2020, largely due to higher incentive compensation and the addition of HPC. We also had about $3 million in government assistance in 2020 in corporate and less than half a million this year. For full year 2021, our adjusted EBITDA guidance now assumes receiving a total of approximately $12 million in total government assistance, primarily from Canada. Based on our current EBITDA guidance and working capital assumptions, We now expect 2021 adjusted free cash flow in the range of $310 to $330 million or a midpoint of $320 million. In closing, we delivered another excellent quarter in both segments of our business, particularly on the top line as demand returned to pre-pandemic levels in many of our businesses. We're excited about the prospects of HPC. In environmental services, we expect to benefit from our record backlog. As Alan outlined, We're facing some cost and labor challenges, but we are confident in our ability to address those. Within SKSS, higher base oil pricing and effective spread management has continued into Q4. We expect our spread to narrow at some point as supply normalizes, but we are maximizing the benefit for as long as we can. The team has done a great job driving profitability in that segment. With that, Rob, please open up the call for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, that's star 1. Thank you. Our first question comes from the line of Noah Kay with Oppenheimer. Please proceed with your questions.

Good morning, all, and thanks for taking the questions. Hi, how are you? Maybe can you start by talking about the acceleration of pricing initiatives, which you mentioned during the prepared remarks? What level of price in ES do you believe is needed to drive margin expansion in this segment as we head into 2022? What's your confidence and ability to get that price, and how much Can you actually drive in IFNS, including HydroCam, or does it need to come primarily from the disposal side?

No, I think, this is Alan, I think pricing really needs to come from across the board. You know, certainly transportation impacts all pieces of our business, as you know, and that's where we have seen the greatest amount of challenge in moving products our waste materials, but also servicing customers and gathering waste. So we definitely know that we've had limitations on getting new equipment, getting trailers, getting subcontractors to support us when we've now maxed out our own internal capabilities. So I would say transportation really has tentacles throughout all aspects of our business. But as we think about price increases moving forward, we recognize that many other costs, materials and supplies, labor costs are going up, fuel, other energy, natural gas, and so forth. So our team, which has been in place for years here, really is working forward across all lines of business with pricing initiatives that have been not only going on this year but are going to be actually accelerated going into 2022.

Okay, thanks. And just sort of your confidence around ability to get enough price to drive margin expansion in ES for next year?

Yeah, I think, you know, certainly we have some cost headwinds in regard to our labor costs and other costs, as you know. So we're not only hoping to offset those increasing costs, but also to get some margin expansion from that.

Yeah, no, I think the difference this year versus prior years as well is that stick rates have been actually much better than we expected, and that's going to continue. I think the message is people got it. They understand that their costs are going up across the board, and so when we've gone to customers with price increases, they've been receptive.

Yep, makes sense. And just as a follow-up around Hydric, you've provided a little bit of color on the integration so far. Can you give us a little bit more on, you know, where you're first focusing, kind of some of the key early initiatives, uh, uh, priorities, and then, you know, if it's possible, can we get any thoughts about the cadence of how those 40 million in cost synergies flow through, uh, over the balance of the first full year?

Sure. Well, certainly our, our day one plan was to get hard to come up and running on our platform and which we successfully did and, uh, The management team is in place now, and we've got some terrific people that came over from Hydrochem. Combined with our team, we're really feeling excited about moving forward. There are obviously some synergies that we'll be working on in the next three months here to close out the year, and then moving forward into next year, a big focus will be on sort of looking at contracts, because we do have a number of customer overlaps within our businesses. And so we're going to have to be working real closely with our customers as we combine contracts together so we can move forward into 2022 with, you know, sort of everything under one corporate organization here. So that's going to be our primary focus is to get those contracts rationalized.

Okay, perfect. Thanks so much.

Our next question is from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Yes, hi. Good morning, everyone.

Good morning.

Hi, Jerry. Can we talk about the incinerator pricing cadence? So based on contracts that you have in place heading into the fourth quarter, what level of incinerator price increases are you expecting based on what's already planned for the quarter and then, you know, coming back to the 3M announcement now that some of your customers had more time to process what 3M is doing, I'm wondering if you've had inquiries for potential similar arrangements in terms of increasing scope with existing customers that might be vertically integrated in incinerators. Thanks.

Hi, Jerry. This is Mike. I'll start, and then I'll turn it over to Eric, who's with us today. So when you think about pricing for Q3, as we said, as Alan said in his prepared remarks, Q3 pricing and incineration was up 11%. And in the past, we've been asked about what is that mix versus price? And we've always said, you know, two-thirds mix, one-third price. I think in Q3, it's more two-thirds price, one-third mix. So we have been getting kind of a lot of price, and as contracts have come up for renewal, even off-cycle discussions, we've been able to drive price and incineration at a pretty high clip, kind of all year, as you know, versus last year or the year before, and we've continued to drive kind of good price expansion in that business. And so I expect that as contracts come up for renewal and as we have, as Alan said, not just in incineration but in all parts of our business, we'll be able to drive price to drive profitability in the business. And we're talking about 3M. I'll turn it over to Eric and give you some more color on that.

Yeah, Jerry, this is Eric. So our startup with 3M continues to go well. We've been handling a significant amount of volume from them throughout the course of this year and continue to implement our strategy with servicing all of their locations. As we look at our other captives in the industry, we have relationships with every one of those units that have a captive incinerator, and we continue to work closely with them. They've been our customers for a long time. There is certainly areas that we can continue to help them on reducing their costs by leveraging our network. So there does continue to look like there's opportunities there ahead of us.

Okay, great. And then on the re-refining spreads, you mentioned a record quarter for you folks. Can you talk about how do you view normalized re-refining margins post IMO 2020 now that the world will hopefully be normalizing post-COVID, where do you expect re-refining margins to shake out compared to prior cycle levels?

Yeah, I think we certainly see the impacts of IMO when we look at outlets for recycled fuel oil versus our internalization of taking used motor oil and re-refining it into base oil. And so we can clearly see it in that market. We're going into... into the fourth quarter here and into the winter months with record inventory, over 40 million gallons of inventory. So we're well positioned to have what we need in our facilities to process. And we're now looking at alternatives for some of our oil because there's just a ton of oil around. And I think that's evident of IMO 2020, in my opinion, anyway. And so I think that moving forward into 2022, although we think that you know, base oil pricing may start coming down. I think that the team that we put in place at the beginning of this year to run this segment of our business is really doing an excellent job of maintaining that spread. And I think customers are really interested in our green, you know, oil. You know, the whole idea of our sustainability program. I think we could sell a lot more direct lube oil to our customers, if not for the additive shortages that we had, the hydrogen problems that the industry has had in getting hydrogen. So I think next year we'll be able to offset probably some decline in base oil pricing with a further high margin sale of our blended direct materials because the demand is there. We just need to get them the product.

Appreciate the discussion. Thanks.

Yeah.

Our next question comes from the line of Tyler Brown with Raymond James. Please receive their questions.

Hey, good morning, guys. Hey, Mike. On the guidance, it looks like you raised EBITDA midpoint by, call it, $30 million. I think you called out the $15 million in Hydrochem, but my hunch is there's some moving pieces in that other $15 million. I don't know if you totally look at it this way, but could you bridge the other $15 million? I know you've got good guys like Wider Spreads and then maybe some things working against you, but could you Maybe bucket some of that.

Sure, Tyler. So it really is the addition of Hydrochem. And just to clarify, when you talk about Hydrochem, that has up to $5 million of severance and integration costs. And on a monthly basis, the business is not linear, right? We talk about over $100 million of EBITDA in that business, but $15 million looks pretty light for Q4. We didn't buy that business until after the first week of October. October is a great month for the industrial business. A lot of turnaround is happening. in November and December tend to be slower. And so it's important to note that 15, please don't take 15 as a run rate as you go into 2022 from a math exercise. I know you guys love spreadsheets. When you think about other things, it really is that I've called consistently spreads starting to narrow. And as we sit here talking to you, I don't see that happening. So as such, that's allowed us to raise our guidance Again, in Q4, there are a lot of moving pieces, whether it be severance costs, integration costs, other things we're doing. But I'd say at a high level, that's what's driving it.

Okay. That's helpful. And then, Alan, on the pricing flexibility, I mean, I get it in disposal, maybe even charge for oil and SK, maybe even emergency response. But in these industrial cleaning contracts, how much pricing flexibility do you have? Those contracts maybe escalate annually. Or can you go back and maybe touch pricing there more often than in times like this?

Yeah, I think that, you know, there's been certainly a shift over the last year and a half with our relationships with a lot of large industrial accounts. We gave back a lot of price concessions. And even though we had firm contracts with firm pricing, we gave back millions of dollars during 2021. with pricing concessions. We are going back to those customers and others and realizing that, yes, we have contracts in place. Maybe some of them are not coming up for renewal for a year or two, but we are raising prices to those customers as well. We're going back and getting those concessions and then some certainly for sure. And with the shortage in labor or the inability to get equipment and transportation costs, there isn't a customer that we do business with that hasn't been touched by what we read about in the paper, all this supply chain issues. And so, you know, our feeling is, quite frankly, you know, if we can't get the kind of margins for the risks that we're taking, we're not going to continue to do business. We're going to move forward and share those resources with other customers where we can make the margin and we can recover the cost increases that we're seeing.

Okay. That's helpful. And then just lastly... I know it is early, but just any flavor on CapEx for next year, I assume you're going to have a big jump in Kimball spend?

Yeah, Tyler. So, you know, you have a couple things there. You're going to have, you know, the hydrochem addition, and that's going to generate a fair amount of EBITDA, but they also need capital. And, you know, we have about $55 million, which we talked about before, for the incinerator queued up for 2022. So is mid-2s?

a good placeholder, or is it maybe towards three?

We have to go through our budget process, and that includes the capital budget, so I'd hate to kind of give 2022 guidance on this call.

Okay. All right. Appreciate it. Thank you.

Our next question is from the line of Michael Hoffman with CFO. Please proceed with your question.

Hey, thank you very much. Alan, if I could start with safety, I applaud that you share that with us. So what do you think happened? Is it just that everybody was having to work so hard because there's such labor issues and then you had to kind of bring attention back to that? And then I want to follow up with a labor question.

Yeah, I think, you know, we've seen it over the last 18 months. And, you know, a lot of us think that there's just a huge distraction, particularly going through the pandemic. You know, people, we just think that they're not focused. And, you know, it's a lot of slip, strips and falls. stepping into a pothole and twisting an ankle we're not seeing tremendous hugely injuries but we're just seeing a lot of these small crazy things that otherwise we just would have never seen I think before the last 18 months or so I guess we chalk it up to maybe a distraction at this point But, you know, our TRIR, certainly with a combination of HPC, you know, we'll probably be close to one or even under moving forward because we have a lot more billable hours now coming over. But, you know, I think we've just gone through this, you know, sort of disruption, and I think that's what's causing some of these issues.

And then the labor issue, my view is that the total addressable pool has shrunk permanently and that this doesn't, You can't fix this with just paying people more. So how do you address expanding the addressable pool for clean harbors? Where do you go looking to make that pool bigger so that you have people you can try and hire?

Yeah, I think we have to really look at all places, whether it's the trade schools or the maritime academies or it's – you know, going into the driver schools or the military. You know, we have, you know, close to 800 military personnel now, former military personnel now working for us. So that's been a great place for us to recruit from. And we've got some real strong relationships with the Army there that we want to expand. But we have to do better. We are several thousand people short. Our revenues are constrained by our staffing. And we also know that from a safety standpoint, that first year employee tends to have a higher incident rate than certainly other employees who've been here longer, more experienced, better trained. So really doubling down on training, onboarding, and really trying to fill those open key positions that we have out in the field. Okay.

And then, Mike, can you help us? We are modelers and spreadsheet people, so what's the rollover? M&A sales and EBITDA you want us to use for Hydrochem?

Yeah, so if you say, you know, $15 million and there's, you know, let's say $3 million of segments and integration, so that's, and then we've already said publicly, you know, $1.15 plus, you know, $20, $25 million of integration synergy costs, you know, so you can do the math on that. You can get a rollover number from there.

Okay, so I'm taking 115, less 15, and then help me with the three. Is that three is incremental to the 15? So it's a negative, it's really 12?

So let's say it's 15 for the quarter. So say it's 15 for the quarter, 115 we've already said publicly, plus 20 to 25 million of synergy costs. So that gives you like 135 minus the 15 is probably a 115 run rate.

Got it, okay.

Incremental. Incremental, yeah, but at 2022. Got it.

And then if I do the math right, you're somewhere between up to maybe $100 million above 2019 in used oil, SKSS. Some piece of that, as Alan alluded to, has to have benefited from IMO. So when the number corrects, what I'm interested in is there's 115 from HPC. There's potentially, on an annualized basis, 15 to 20 from Vertex. So I think we can have a conversation that says, even if this corrected 100% on January 1st, you're not down, you're flat, maybe up. All else being, without any other growth anywhere else. That's the right way to start the thought process about 22?

Yeah, so we have to go through a budget process that includes a board review as well as, you know, CapEx budget. So it's hard to kind of speak to that kind of with so much level of precision. But I would say that the When you think about the spread, you know, as we talked about before, Michael, it's kind of three things. It is, you know, kind of the impact of IMO 2020. I'd say strong spread management by the team we put in place kind of earlier this year. And it is wide. And I don't know. It's really hard for me to predict kind of when that gets back to when that contracts. And if that contracts, certainly not going to happen on January 1st. As you know, it took a long time to get to here. It will also take a long time to get back to whatever normal is. I don't know what normal is. So it's really hard for, I mean, I think personally I believe for us and people in our industry, this will be one of the hardest budgets and hardest guidances we'll have to do in our time here because, you know, that's going to be really hard to predict kind of if and when that does come back to whatever that was kind of pre-pandemic, if it does. So it's hard for me, you know, the good news is I don't have to give that today. I have time to think about kind of where we are. We'll have a conversation in February about that. Looking forward to it.

Okay. Thank you very much.

Thanks, Michael.

Thank you. As a reminder, if you'd like to ask a question today, please press star 1 from your telephone keypad. Our next question is from the line of Jim Rusciutti with Needham & Company. Please receive your question.

Thank you. Good morning. You talked about in the ES business some of the project volumes. stalling a bit, at least in your slide. You talked about it as a result of the pandemic. Just as we're starting to see some of the Delta concerns seemingly, hopefully, abating more recently, should we see that turn around? I assume you're starting to already.

You know, we have a pretty good pipeline, but Eric, maybe you might want to comment on that.

Yeah, Jim. Clearly, as we've gone through this year, Our pipeline has been increasing quarter to quarter. The difficulty came about when many of these projects were restricted from getting permits to be able to move forward and do the cleanups that were required. And so the permit process has continued to be somewhat delayed, but our pipeline has grown. Our visibility of projects today is much better than a year ago. And we do foresee, as we go into the fourth quarter and get into 2022, that we'll have a much more robust project business into our sites.

Got it. And just with respect to HPC, I could certainly appreciate, you know, the short-term goals that you need in terms of integrating the business. But you've also talked about cross-selling opportunities. And I'm wondering how soon in – 2022, might we begin to see the benefits of that?

Yeah, at least I'll start. I think we've looked really from a sales standpoint, we've sort of combined our sales organizations together now. And I think looking at the white space that exists across particularly the top 40 or 50 accounts of HPC and vice versa, Clean Harbors as well. And so I think the team has really done a good job in these early weeks to start planning the strategies against that white space that exists in some of these contracts that we each have to kind of share our capabilities across those accounts. Eric, if you want to add any.

Yeah, I would say in the early days that our teams on both sides now combined as one. are very excited about the cross-sell opportunities. You think about refineries and chemical plants alone. Pre-acquisition, obviously, Hydrochem was really only doing industrial cleaning and things like leak detection and repair. And there's an opportunity at Combined Forces to do additional material processing, tank cleanouts together, transportation and disposal of those tank cleanouts. So our teams, our sales working together, they're already knee-deep thick into... starting to expand cross-sell without our customer base.

And Jim, as we've given out these numbers, either in the earnings, in the announcements we've made in connection with the acquisition and through our earnings calls, our models do not include any cross-sell.

Got it. And just with respect to pricing at HPC, I assume same kind of dynamics that you're seeing in the ES business. Have they been what have they been doing on the pricing side as we've seen some of this inflationary pressure really build, or is this something that you're addressing now at HPC, that part of the business?

Yeah, I would say we're just addressing it now. We were restricted during the entire integration process of looking at any pricing data right up until the close. So with the close taking place on the 8th, it's sort of been from that point on now that we've really been aggressively trying to look at all that But I would say, you know, the three months prior to, you know, signing our agreement, you know, HPC did a pretty good job of managing pricing, certainly with their customer base, but it had to take a pause during the integration. So I think we can be more aggressive now and try to get everything at least underway in the near term here. Got it. Thanks very much. Yep.

Thank you. Our next question is from the line of Jeff Silbert with BMO Capital Markets. Please proceed with your questions.

Thanks so much. I wanted to switch the topic to what's going on in Washington. I know things are still not yet finalized, but you've had a few more months to look at some of the plans that they've been talking about from an infrastructure perspective, et cetera. Any indication what impact that could have on your business over the next few years?

You know, I think one of the key things is to look, you know, lowering the age on drivers to 18 and that, that, You know, there are a lot of routes that we do and a lot of movements that we do that, you know, that would help us a lot to be able to put on a new generation of drivers sooner, and I think that will help, you know, in that issue across the board. But I think, I don't know, Eric, do you know where we are with PFAS at this point? I know that's a big topic that people have asked.

Yeah, PFAS continues to be a big focus. Obviously, in October, the EPA issued a PFAS policy statement. Their first focus over the next year or two is around drinking water and groundwater. We continue to follow very closely where they're going with the legislation they look to create and what levels and limits they deploy, but that continues to be an opportunity for us, but it's going to be a long, long time in the making and really a a long tail over 10 to 20 years of how we look at that.

Okay, that's helpful. And just keeping the discussion about the regulatory environment, I don't know if you can give us a little bit more color on the issues with the Vertex Energy closing and what are the milestones we should be looking for over the next few months before that deal closes. Thanks.

Sure, Jeff. So, you know, as we mentioned, we did get a second request from the Federal Trade Commission. We are working to respond to that, and that includes, you know, you know, providing all the data we need to give a thoughtful response back to the government. You know, until then, we are just working, you know, that business continues as a separate standalone public company, and so do we. And so we're both working. We both have a list of things we have to go do, and we're working on it every day.

All right. Fair enough. Thanks so much.

Thanks, Jeff.

If you'd like to ask a question at this time, please press star 1 from your telephone keypad. Thank you. This concludes... Our question and answer session, I'll turn the floor over to Mr. Rick Kim for closing comments.

Okay, Rob, thanks. Thanks for joining us today. We are participating in the Baird Industrials Conference next week and certainly a number of other conferences before year-end, so we look forward to speaking with many of you at those events. Have a safe day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.