Clean Harbors, Inc.
Q4 2015 Earnings Call Transcript

Published: 24 Feb 2016

[Operator:]

Greetings, and welcome to the Clean Harbors Fourth Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to your host, Mr. Michael McDonald, General Counsel. Thank you, Mr. McDonald. You may begin.

[Michael Robert McDonald:]

Thank you, Robin. Good morning, everyone. Thank you for joining us today. On the call with me are Chairman and Chief Executive Officer, Alan S. McKim; Vice Chairman and President, Jim Rutledge; EVP and Chief Financial Officer, Mike Battles, and our SVP of Investor Relations, Jim Buckley. The slides for today's call are posted on the Investor Relations section of our website. We invite you to follow along as we go through the presentation. Matters we are discussing 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 this date, February 24, 2016. Information on the potential factors and risks that could affect the company's actual results of operations is included in our filings with the SEC. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's press release or this morning's call, other than through SEC filings that will be made concerning this reporting period. In addition, today's discussion will include references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release, which can be found on our website, cleanharbors.com as well as in the Appendix of today's presentation. And now, I'd like to turn the call over to our CEO, Alan McKim. Alan?

[Alan S. McKim:]

Thanks, Michael, and good morning, everyone. Thank you for joining us. Beginning on slide three, we performed reasonably well in Q4, particularly in light of the considerable external headwinds affecting our end markets. Weakness in the energy industry accelerated and U.S. industrial production fell at an annual rate of 3.4% as firms scale back to spending plans. Against that backdrop, we controlled what was in our control, pursuing opportunities to capture greater efficiencies and lower our costs. The result was Q4 adjusted EBITDA of $97.2 million, led by another strong performance for Safety-Kleen Environmental. Before moving on to the segments, I want to comment briefly on 2015 as a whole. In the face of numerous challenges this year, we still generated more than $500 million of adjusted EBITDA for the third consecutive year, which really is a credit to the strength of our people and the resilience of our business model. In addition, our team delivered our best safety year in our history, and I just wanted to publicly recognize them for the incredible job they did this past year at protecting our workforce, our customers and the communities we serve. Turning to the segments in detail, starting on slide four, Tech Services. Tech Services revenue and profitability were down from a year ago due to the same factors that affected the segment throughout much of 2015. Our incineration utilization was 89%, thanks to healthy drum volumes from our base business and from Safety-Kleen. However, our landfill volumes were less than half of what they were a year ago. Project deferrals on some potentially high margin waste streams, lower drill cuttings and reduced industrial volumes all contributed to the year-over-year decrease in the quarter. Within Tech Services, we recycle a sizeable amount of various waste streams from customers. These include solvent, copper, catalyst, scrap metal, and transformer oils, among many other things. The value of those recycled products has been considerably down throughout this year, which continue to impact us in the Q4. In addition, lower crude prices and a strong U.S. dollar adversely affected waste streams from a number of chemical and industrial customers. Turning to Industrial and Field Services on slide five. In Q4, our base business was relatively stable, but customers were extremely reluctant to spend on projects in this climate, as evidenced by a 12% decrease in revenue. Our U.S. Industrial team did a good job growing its business in Q4, mainly through turnaround activity. Overall industrial activity across all of Canada, particularly the oil sands, was down significantly year-over-year. And that lower activity was compounded by the effect of currency. Profit in the segment was down more than 40% from Q4 a year ago, when we had more projects and a better mix of high margin work. Fleet utilization was just 76%, which was down from a year ago. Moving to slide six. The drop in outside revenue in Kleen Performance Products reflected the continuing decline in base oil pricing. Posted Group 2 pricing fell $0.50 over the course of 2015, and after two more reductions here Q1, including $0.15 last week, today's price stands at only $1.70 a gallon. On the day we closed the Safety-Kleen acquisition, posted base oil prices were more than $2 above today's level. Direct revenue was essentially flat in Q4, demonstrating our efforts to manage the spread in this business. In this weak crude oil environment, managing our charge-for-oil and stop fees will be critical for us in 2016 to effectively counter the persistent base oil pricing pressure. In December, Safety-Kleen introduced an $80 stop-fee for waste oil producers. We've been very successful rolling out that program to customers and are planning to adjust those fees higher given the $0.15 decrease that Motiva (6

[Michael L. Battles:]

Thank you, Alan, and good morning, everyone. Let me begin by covering direct revenue by segment on slide 16. Tech Services was our largest contributor at 40% of revenue in Q4, followed by SK Environmental at 21% and Industrial and Field Services at 20%. These percentages are slightly higher than what you might expect, since Q4 is one of our seasonally weaker quarters for Environmental. But given the weakness in the energy markets, Oil and Gas Field Services and Lodging Services did not see their customary year-end ramp, and combined, only accounted for 8% of our total Q4 revenue. Turning to the income statement on slide 17, gross profit for the fourth quarter declined to $190.1 million, which translates to a gross margin of 26.7%. This is 100-basis point below Q4 2014 when we saw a better mix of high margin business particularly environmental waste projects. SG&A expenses declined in dollars at $92.9 million in Q4, equating to 13% of revenue. This is down about $10.6 million from the fourth quarter of 2014, but up about 70 basis points due to the lower revenue in the 2015 period. Looking at SG&A expenses for the full year, we not only lowered our absolute dollars by more than $23 million, we reduced our SG&A percentage from 12.9% to 12.6%. This reflects cost reduction efforts and lower incentive compensation expense in 2015, savings that more than offset the labor and administrative costs associated with our emergency response business in the second and third quarters. For the full year 2016, we look for SG&A expenses to be approximately flat in terms of absolute dollars, as we expect our cost saving programs to be offset by sales related investments that Alan highlighted. Depreciation and amortization for the fourth quarter was down about $1.6 million to $69 million. The decrease reflects lower amortization in Q4 in our landfill business, partially offset by Thermo Fluids. For the full year, depreciation and amortization was down $1.9 million to $274.2 million. We expect the full year 2000 (sic) [2016] (19

[Operator:]

Thank you. At this time, we'll be conducting the question-and-answer session. Thank you. Our first question comes from the line of Al Kaschalk with Wedbush. Please go ahead with your questions.

[Al Kaschalk:]

Morning, guys.

[Alan S. McKim:]

Good morning, Al.

[Michael L. Battles:]

Good morning.

[Al Kaschalk:]

I want to just focus really on a little bit more of a macro commentary in helping maybe address a couple of questions that we've been getting here. If we take a step back, Alan, and look at the overall business and your guidance in terms of what you provided for 2016 and given the macro backdrops that you faced here, is there a way to help us better appreciate, whether it's by segment or maybe overall, if you look at what's base business versus project oriented business to help us try to get a feel of where we're at in terms of the underlying trends? Because what I'm hearing and in your commentary and prepared remarks, there seems to be a little bit of the base business that has deteriorated because of the industrial production economic data, but yet, when you look at the guidance (26

[Alan S. McKim:]

Sure. Well, I think as we look at the various waste streams that we handle into our facilities, we certainly see an increasing in the drum volumes that we're collecting, our bulk business, which is -- these are both our landfills or water treatment plants and our incinerations has been relatively steady. With some of our large chemical companies, customers we had seen some reductions in some of the lean water streams and some of the fuel streams that they had generated, and I think that's probably a reflection of some of the slowdown that maybe they had in their business. As it relates to the project side of our work, I mean certainly a lot of what we do here is based on generator cycles, where the customer has 30 days, 60 days, 90 days to manufacture what they manufacture, generate waste, and then we collect that waste. And we service hundreds of thousands of accounts. And so that in itself is our base business, but the quantity and sometimes the shipment frequency of that changes based on their business. And so, I would say that in some parts of our business, we've seen the services stretch out to longer durations. So we might have a four-week service moving to an eight-week service for example. Certainly, as we have started charging for our stop fees, and that's something that we'll continue to do in Safety-Kleen, customers looking to extend out the number of weeks that go by before we perform the service, just as a means of maximizing how much we do for them when we perform that service. So there's a lot of probably color I could give you, Al, across all parts of our business, but I guess, I would characterize is that our business is relatively steady, but for those events and projects that tend to generate large volumes of waste into our landfills, large remediation projects, that is really where we saw a slowdown in what you would consider our core business. And as we look at the activities, particularly around oil and gas, many of our largest accounts that drove volumes into our Alberta landfill, our North Dakota landfill, our California landfill, we saw a significant tail-off in those volumes and those, to some extent, were base volumes for us before, but as those rigs laid down and as those activities ceased, we saw a real decline in volumes and I think many of our competitors probably will speak to that as well. Overall, though, I would say that our activity levels, our drum volumes, our Field Service business, our quote level, our – if we look at our pipeline, I would say that there is a lot of strength throughout many parts of our business, say, the Oil and Gas Field Services and Lodging business.

[Al Kaschalk:]

Very helpful.

[Alan S. McKim:]

Is that helpful, Al?

[Al Kaschalk:]

No, it is. That's great. And then, very happy to see the guidance on the cash flow from ops at the $350 million, $400 million. I think that was the numbers Mike rattled off there. Could you – just as a follow up to that, the closed-loop system, good progress on the trial program in Canada, the activity you've undertaken with the acquisition out on the West Coast, are those similar? In other words, we would see more likely customer adoption out on that area of the geography? Or what do you need to invest to get that to the level or trend towards the level that you're looking for? Thank you.

[Alan S. McKim:]

We're very optimistic about working with partners, some of our buyback distributors as well as our own direct capabilities to provide that service to our customers, particularly in this kind of a market where we're already going out to these customers, charging them a stop fee, charging them for delivery, been able to add other products or services to the same truck, so to speak is really, I think, compelling to many, many of our customers. I just wanted to add one another thing too that, when you look at Safety-Kleen in general, as we've talked about this year, it's been one of the more profitable and growth stories for us. We really think we can continue to grow that business substantially. Whether we can grow and double it over the next five-plus years or not will be seen, but the key performance indicators that we see the 990,000 services on parts washers, the increase in oil filter bins that we're placing out at our customers' sites, the increase in the do-it-yourself tanks that we're installing, the increase in roll-off frames and boxes that we see at record levels right now, all of the key indicators in our core Safety-Kleen business are really pointing in a really solid direction. So I think as we think about rolling out our direct product sale, it's rolling out to what I think has become a very successful business model for us and we're really excited with where we are after three years now of owning Safety-Kleen how we can now leverage that network and leverage their scale and grow this blended oil business. Okay?

[Al Kaschalk:]

Very good. Good luck.

[Alan S. McKim:]

Thank you, Al.

[Operator:]

Thank you. Our next question is from the line of Joe Box of KeyBanc Capital Markets. Please go ahead with your questions.

[Joe G. Box:]

Hey, good morning, guys.

[Alan S. McKim:]

Good morning.

[Michael L. Battles:]

Good morning, Joe.

[Joe G. Box:]

So just relative to the new incinerator, how should we think about the revenue opportunity and the ramp there? Is it reasonable to say, we're adding 70,000 tons per year, it's a 15% bump to total processing capacity and it should flow through at an average price per ton or would there be any major mixed differences or pricing differences we need to know about?

[Alan S. McKim:]

I think because this plant will have a number of key features to feed different types of waste streams and handle more difficult waste streams, because this will meet the new MAC2 standards. Again, this is the first plant built in over 20 years in the country. I think this is – you're going to see a higher price per pound going through this plant. And so that 70,000 tons is a good number, Joe. I think also some of the recent announcements we're hearing with the chemical industry consolidating and then splitting up and forming different businesses, that – all of that is going to provide opportunity for the captives to continue to look to outsource, because many of those sites could become stranded. And those captive sites will become stranded, because these ownership changes really then will restrict what waste can be handled at what plant. So we're talking to a lot of our customers. We have a solid backlog. I think we have about $30 million typically in deferred. We've got a lot of waste. We missed out, quite frankly, on a lot of some volumes last year, because we simply were booked and didn't have the capacity for some of the waste streams. Now granted, I mentioned lean waters were a little light last year, but overall, we continue to see the demand for our incineration could be very strong. And as we continue to roll out more collections across Safety-Kleen, we're going to get more drum waste from that collection network as well.

[Joe G. Box:]

Got it. So couple of tailwinds to demand. How should that ultimately impact the ramp of revenues in this new incinerators? Is it a one-year to two-year ramp or is it shorter than that?

[Alan S. McKim:]

I'd like to think it's going to be shorter, I mean where the site is already approved, the Arkansas site that already has two incinerators is pretty much approved by every major customer. So getting the third plant up and running, mechanically, we're essentially built now completing up the wiring, and certainly, some of the start-up phases, but we'll be turning on that plant in September, October, November timeframe. And I would like to think that subject to any start-up issues with any kind of brand new plant that you may incur will be looking ready to go – ramp-up quite quickly with that plant.

[Michael L. Battles:]

Hey, Joe, this is Mike. And we've put the budget together. We didn't assume any revenue in 2015 for the new incinerator. We're hopeful we get something kind of before the end of the year. That is – the time I would suggest that, obviously, there's issues in the new plant, it could delay a few things, but we feel confident that there was revenue in 2006 for the new incinerator although we have put nothing in the budget at this time.

[Joe G. Box:]

Got it. That's helpful. And then Mike, can you maybe just help me out the moving pieces of SG&A. I mean you talked about $50 million benefit coming from the restructuring, yet, you're making some investment in SG&A and that's going to result in flat dollars. I think you called out 60 incremental salesmen, but I'm curious what else is going to be in that SG&A investment to basically erase the savings for 2016?

[Michael L. Battles:]

Yeah. So when you think of the $650 million of cost savings, it's not all SG&A, there is some direct head count, and other direct benefits that affected direct head count kind of above SG&A. But that being said, we are taking aggressive cost actions in SG&A and other types of discretionary spend. The answer to that, Joe, is really that the bonus we didn't receive given our performance in 2015, very little bonus opportunity for the organization. And as we look to 2016, we're hopeful that that bonus will be in there. So from a quote standpoint, we put that into the budget for 2016. Obviously, if we run short of that, that's going to have an upside, unfortunately, to SG&A as we work through the year, so that's really the delta.

[Joe G. Box:]

Okay, got it. I appreciate it. Thanks guys.

[Alan S. McKim:]

Okay.

[Operator:]

Our next question is coming from the line of David Manthey with Robert W. Baird. Please go ahead with your question.

[David J. Manthey:]

Hey guys. Good morning.

[Alan S. McKim:]

Good morning.

[David J. Manthey:]

As it relates to the incinerators, could you talk about what your average dollars per pound is approximately today? And then a similar question, I know you mentioned that the new incinerator should get a premium to your average, could you talk about what type of premium that is? And then Alan, as you were mentioning Safety-Kleen drum waste, how does that compare to the average? Is that above or below average dollars per pound?

[Alan S. McKim:]

We're roughly at about $0.39 on average right now per pound. Some of the ozone depleting chemicals and some of the difficult direct burn streams certainly are well north of $1 a pound. So clearly, we've been restricted from taking on as much as been available, quite frankly, in the market, and our competition has as well. There is really a – I believe there's a backlog of that material, so it tends to be more in those types of materials, as well as potentially bringing those in from other parts of the world, as everybody looks to reduce those ozone depleting chemicals. The Safety-Kleen containerized waste service business, which when we acquired it was about $250 million or so business. Their price, on a per drum basis, tends to be higher, because there're more onesie-twosie customers again several hundred thousand accounts, smaller quantity, a little bit more costly to profile and collect because of the small quantity. So you tend to get a higher price for those materials because of that, but by tying it into our whole logistics network, we're pretty efficient at moving those small quantity waste drums around now. So we tend to see that end up at our incinerators at a higher price per pound.

[David J. Manthey:]

Okay, thank you. And on the pay-for-oil, charge-for-oil collection, you said that pay-for-oil was down $0.75 in 2015 and with the adjustments that you've made since then or this year, I guess, and the stop fees you've implemented, when you think about 2016, I know it's a moving target, but so far in 2016, if you talk about sort of how you've moved your oil collection fees or costs relative to that $0.75. And then, again, I know it's a moving target, but if Group 2 stays relatively constant, I mean is it impossible to think you could earn $15 million in EBITDA on a quarterly basis, at some point in 2016, based on your charge-for-oil program and the stop fees that you've implemented?

[Alan S. McKim:]

Yeah, Mike, you want to comment on that?

[Michael L. Battles:]

Yeah, sure. I mean that is the plan actually to kind of get to that level and that's through managing the spread, as we talked about during the call. And so, we feel confident that we've gone from $0.75 of pay-for-oil to – from PFO to ZFO now to CFO, and so that's the model and we feel like we feel confident that, as we get into 2016, that process has been kind of worked through our organization, worked through our customers' organizations, and now, I think that we feel like we can make good progress going forward.

[Alan S. McKim:]

Yeah, I mean I think when you look back when crude was at the level it's at, and we look back to the 1994 timeframe, and even if you look back into 2005, this is not untypical for customers to be paying for the service. This is in many states, a hazardous waste, it's a service that is needed. We certainly have been working with our customers, as they can pass along these charges to their customers, because this is a hazardous waste management service. And like many other hazardous waste, we recycle and sell that product, and we need to manage our spread, whether it's taking catalysts out of a reactor or refinery, or taking copper out of transformer for a utility and managing the oil and the PCB oil out of that. So that's all part of our spread management. And I think we have done a very, very good job of managing the spread in that business, in light of how quickly both crude as well as base oil has deteriorated. And our customers, and I met with a lot of them myself, I think our customers are cooperating with us, realize the situation we're in and we'll continue to work with them.

[David J. Manthey:]

Makes sense. All right. Thanks very much.

[Alan S. McKim:]

Yeah.

[Operator:]

Our next question is from the line of Charles Redding with BB&T Capital Markets. Please go ahead with your question.

[Charles Edgerton Redding:]

Hi. Good morning, gentlemen. Thanks for taking my question.

[Alan S. McKim:]

Good morning.

[Michael L. Battles:]

Good morning.

[Charles Edgerton Redding:]

I was wondering if you could just talk a little further on the project pipeline for land-filling, how is this shaping up, and maybe how are their specific – or are there specific end markets where you're seeing pockets of strength here relative to the pressure in E&P?

[Alan S. McKim:]

I think there are opportunities. We have a number of folks that are working with a number of E&C firms and they, in turn, are working with our customers, and like Clean Harbors that has a remediation reserve of $180 million, let's say, that's on our books that kind of is dealing with long-term liabilities and projects that need to get done like us, every single one of our major customers, typically, has one of those reserves and has a discontinued group or a remediation group that is managing those. And so, we're in close, obviously, conversation with direct customers as well as their E&C firms. And I think we have a very good pipeline. What tends to happen, as we try to do and our customers try to do, is manage cash flow, and try to delay in some cases, when they can. And last year was one of those years where we spent quite a bit of money on one project alone, I think was about $6.5 million.

[Michael L. Battles:]

Right.

[Alan S. McKim:]

So we really know that side of the business. I think we're tracking those projects very closely, but I think as we said in our opening script here, the timing of that is what really is always quite elusive for us.

[Charles Edgerton Redding:]

Sure, sure. And then, obviously, on Lodging, can you help us understand a little better sort of the non-traditional manufacturing opportunities that you might see?

[Alan S. McKim:]

We have a wonderful facility south of Calgary that was building the drill camps and the lodges, particularly built the Ruth Lake facility that we put in place a couple years ago. Many of the capabilities of that facility are needed in other modular construction, whether it be for government entities or other industries, as well as even in the United States. So we're looking at expanding our geographic reach for that facility, taking advantage now of the weak Canadian dollar, maybe moving more products, manufactured products into the States. But think of that facility is a very diverse and productive facility that can manufacture a lot of these modular units that can be used across a lot of different industries today.

[Michael L. Battles:]

So we're trying to be creative, Charles, as far as kind of how we use our assets effectively. That's what it comes down to, whether it be kind of alternative types of businesses outside of oil and gas or different regions, whether that be in North America or even outside of North America, and these businesses when Western Canada is really on the rocks if you will. We're trying to be creative and kind of think out of the box to just kind of find alternative uses for our assets, whether that be modular units for municipalities or doing drill work in different geographies. Again, it's just trying to be – we got these assets. They need to be put to work and we got to be creative by that, and that's just my example.

[Alan S. McKim:]

I mean one of the largest customers that we have and one of the largest oil companies in the world asked us to go to New Zealand and we're there, we've got crews there, we've got equipment. We're doing work. And it's the things that we're doing whether it's there or it's in Australia or it's even in South America. If we have one of our top accounts and they're looking for our expertise and our assets, then those are things that maybe in the past we wouldn't have looked towards that we are today where we still have demand, it's just not in the Western Canada market any longer. And so, we're being very aggressive across geographies as well and across markets.

[Charles Edgerton Redding:]

Thank you, Alan.

[Alan S. McKim:]

Yeah.

[Operator:]

Our next question is from the line of Michael Hoffman with Stifel. Please go ahead with your question.

[Unknown Speaker:]

Good morning. This is actually Brian (47

[Alan S. McKim:]

Okay. Hi, Brian (47

[Michael L. Battles:]

Hi, Brian (47

[Unknown Speaker:]

Hi. Thank you for taking the questions here. I just wanted to start with on the acquisition of the Vertex Bango facility. Post that deal, where does Clean Harbors stand on re-refining collection volumes total and re-refining capacity?

[Alan S. McKim:]

We're, I think, right about $180 million and don't hold me to that, Brian (47

[James M. Rutledge:]

May be a little bit higher than that.

[Alan S. McKim:]

Maybe a little higher, yeah.

[James M. Rutledge:]

Yeah.

[Alan S. McKim:]

On base oil.

[James M. Rutledge:]

Absolutely.

[Alan S. McKim:]

Well throughput, throughput actually. That's right.

[James M. Rutledge:]

That goes to base and (48

[Alan S. McKim:]

Yeah.

[Unknown Speaker:]

Okay. And then, when you think about the savings kind of, as you touched on this volume swaps, and obviously your charge-for-oil program, I mean kind of what's built into the 2016 guidance range of the $430 million to $490 million in the sense of kind of the swing factor in savings on that part of the business? I mean to get to $60 million, if you will, on that I'm guessing you're talking about close to $0.25 to $0.30 of savings. Can you give some color on how kind of that might split down and between the different places?

[Alan S. McKim:]

You're talking just that particular acquisition itself or...

[Unknown Speaker:]

Well, that -- I mean obviously, your transportation savings will be there from the swaps, but also when you think about getting to $60 million in adjusted EBITDA for the Kleen Performance Products, where does the other savings come from?

[Michael L. Battles:]

Yeah. It comes from the transportation savings that Alan's talking about in the swaps, but also through our continuing down the path on stop fees and charge-for-oil. I mean we do have kind of increases during the course of the year as we continue to gain traction in that program. And so that's our goal, is to go from kind of where we are now in the low singles, kind of up our way through the course of the year to kind of drive that type of profitability. That's really just a function of the environment, the market and our ability to try to manage spreads.

[Alan S. McKim:]

Yeah, and our over the road transportation cost is in excess of $150 million across the business. So obviously, the expansion and use of our rail -- we've got a large rail fleet of 1,800 railcars now, both dry and bulk liquid, and I think we're really tackling the transportation cost in the routing side of things, because that continues to be an opportunity for us even in light of all the hard work that the team has done on the front end collection side and on the stop fee side, there is still a lot of opportunities to do a better job of routing, and like I said, performing swaps and – because we all – we're all in this together, as an industry, trying to figure out at these catastrophic levels, quite frankly in base oil, how to survive this downturn.

[Michael L. Battles:]

Yeah.

[Alan S. McKim:]

So we're working together.

[Michael L. Battles:]

And how to be more creative, and our goal is get to kind of double-digit charge-for-oil by the end of the year.

[Unknown Speaker:]

Okay. And then if I can just sneak one last one in. On the emergency response, clearly, that's coming out. What's baked into that $430 million to $490 million guidance on emergency response? Is that zero or is there some level of expectation that you'll be doing some work?

[Michael L. Battles:]

Zero at this time, Brian (51

[Unknown Speaker:]

Right. Thanks. I'll get back in the queue.

[Operator:]

Thank you. Our next question is from the line of Brian Chin with Bank of America Merrill Lynch. Please go ahead with your questions. Please, Mr. Chin, your line is open for questions.

[Alan S. McKim:]

Maybe we lost him.

[Operator:]

Appears we may have lost Brian. Our next question will come from the line of Sean Hannan with Needham & Company. Please go ahead with your question.

[Sean K. F. Hannan:]

Yes. Good morning. Thanks for taking my questions. I have a few of them here this morning. So first, in Technical Services, just as a sanity check, is it possible somehow that there is any lost share for some of the volumes that would come to any of your disposal?

[Alan S. McKim:]

One of our customers on the broker side of our business did an acquisition and acquired, again, one of our other brokers. And through that acquisition, we raised our prices quite frankly. And some of that business was lost and I think I would say purposely lost. So yes, we did lose some volume on our – as everyone knows, we have a solid $100 million amount of business that comes to us through third-party companies, competitors/customers. And we have a strong sales effort around those accounts. But from time to time, as changes take place, consolidation takes place, things change, we have lost some business last year in that. And I would say that was probably the only significant loss of business last year, Sean.

[Sean K. F. Hannan:]

Okay. That's helpful. And then, in terms of landfills and being able to drive large projects volume through there, I'm just trying to understand this a little bit better, because when I think about the general project nature for, I mean, the services you provide, we already do see and have seen some disruption delays in volumes that otherwise come to you. So just trying to understand how you may have some control in being able to drive incremental volumes into those landfills from those project wins that even though they're enhanced, is there anything that actually gives confidence that we can push that? Thanks.

[Alan S. McKim:]

Sure. Well. And certainly, I think as everyone who has any large remediation project is doing everything they can to try to come up with alternative technologies then to dig out material and haul it, and put it into a landfill in many respects, the regulations drive the disposition of the waste. And so, whether it's the certain codes that they carry under RCRA or the certain best available treatment technologies under RCRA, we know that that is where the material, ultimately, is going to go either to an incinerator or a Subtitle C landfill. I think what we're trying to do is really to be as efficient and creative as possible to reach across all markets in the U.S. and to really look at our landfills on a U.S. basis rather than regional basis. And so, as we think about the impacts to our North Dakota landfill, for example, we're looking at how do we now look outside of that region to drive more volume into that particular facility. We're expanding one of our landfills in Texas. We still see some good growth opportunities in that market, particularly with the Permian still going pretty strong. Our California landfill, I think, again, last year, hit its cap. So I don't feel even with the slowdown in that market, we can offset that and I think, there're some other nice business in that market, maybe even a little bit higher price, quite frankly, we might not hit our cap, but I think overall, we feel very good about our landfill there. So I think we've got some good strategies. I think one important thing is we've finalized our 25-year expansion, in our Sarnia Ontario landfill. And so that site now got its permit behind it, and we had really limited how much material was going into that facility. And so, as we move into this year and next year, we're certainly hoping that, particularly in Ontario, but throughout Canada, we could continue to grow volumes in that landfill. And at the same time, two other landfills, one in Western New York and another one in Ontario, will be closing. And so, we think we're really well-positioned with that site now, that we have our new permit, we can get some increased volume at that location. So I hope that gives you a little bit of color, Sean.

[Sean K. F. Hannan:]

Okay, that's helpful. Two additional quick questions here if I may. PFO – or I'm sorry charge-for-oil, is it possible – did I miss where your average is at this point? And the reason I ask is some of the industry conversations I had suggest some of your smaller competitors, at this point, are in the mid-teens, some of them are even up to charging nearly $0.30 a gallon. So just trying to understand given your collection industry leadership, your ability to drive more aggressive results in that metrics? Thanks.

[Alan S. McKim:]

Sure. So as we look at the 190-plus locations that we service customers from, you can imagine that each pricing and economics is different at that local level, and certainly, at that small regional level. And so, our pricing and how we approach each market certainly has a lot to do with our transportation costs. It has a lot to do with what particular outlets might be available to us in a market that may be so costly to move into one of our plants that we need to do a swap with somebody or we need to sell it as our recycled fuel oil. So I would say that we have done a really good job of understanding those local markets and pricing appropriately into each one of those. And I think in many respects, I think our competitors are doing the same. So that's probably one of the reasons why you're getting these different price points from some of the smaller gatherers out there that, quite frankly, we do business with. We take their oil. In some cases, we actually still pay for their oil if they're right in the greater Chicago market, let's say, for example, so. But I would just say that, in general, we're in a charge-for-oil market right now, and top of that having a stop-fee to provide the service and that will probably continue to accelerate more now that we see crude being stubborn at $0.30 and base oil going down again another $0.15.

[Sean K. F. Hannan:]

Okay. So not willing to comment though on where your average collection fee is?

[Alan S. McKim:]

Jim, I don't know if we have done that. Go ahead.

[James M. Rutledge:]

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[Sean K. F. Hannan:]

Okay. Last question here on the cost reductions, the $50 million for 2016, is that $50 million fully realized in 2016, explicitly within the income statement or is that $50 million related to cost actions perhaps not fully realized?

[Michael L. Battles:]

So I'll answer this. Sean, it is fully realized within the P&L in 2016 between kind of cost of revenue and SG&A. So that is the net number if you're looking at that way.

[Sean K. F. Hannan:]

Okay. And so, then the $100 million for 2017 is Jan 1 out of the gate, as a run rate?

[Michael L. Battles:]

So when you think about it, Sean, just to give you some clarity, when we look at our internal numbers, we're forecasting kind of much higher than the range we've given you, right? So we're trying to make sure that we kind of deliver on these numbers. So our cost actions are much higher than that. We just – we want to make sure we've – the abundance of caution kind of give us kind of a lower number. So I just – we're trying to give you answers, but just taking a step back and looking at it from an internal standpoint, our budgeted numbers are kind of much higher EBITDA, more cost reductions and more aggressive than what's actually potentially shown here.

[Sean K. F. Hannan:]

That's fine. I guess what I was just trying to understand now is, when you hit Jan 1, are you at least at that $100 million run rate?

[Michael L. Battles:]

Absolutely. Yes.

[Sean K. F. Hannan:]

Okay. Great. Thanks so much for your patience for all my questions.

[Michael L. Battles:]

No problem.

[Operator:]

Thank you. The next question is from the line of Barbara Noverini with Morningstar. Please go ahead with your questions.

[Barbara Noverini:]

Hey, good morning everyone.

[Alan S. McKim:]

Good morning.

[Barbara Noverini:]

In Technical services, you discussed the declines and the value of various metals you recycle. Can you please remind us what percent of Tech revenue sales come from recycled materials? And maybe talk about the expectations you've built in for recycling in your forecast for Tech Services for 2016?

[Alan S. McKim:]

Yeah, it's probably less than $100 million, Jim.

[James M. Rutledge:]

Probably at least $100 million maybe – it's definitely a little bit more, but of course, this excludes all of the Safety-Kleen recycling that we do of waste oil and all that. But if you look at just kind of like where legacy Clean Harbors is, it's a little bit north of $100 million.

[Alan S. McKim:]

Yeah, I think overall, if I remember, and again, this is not an exact number, but overall, about $700 million of our revenues were from selling products that were recycled like selling base oil. This is going back a couple of years. And as you can imagine, there wasn't one of those that is probably not at half that price, whether it's recycled fuel oil, base oil, blended oil or any of the other commodities like catalyst, copper, metals and what have you. So Barbara, it's a pretty substantial number, because that is a big part of what we do is collect a lot of hazardous waste and recycle it for reuse.

[James M. Rutledge:]

And just to give a little color on that, for 2015, what we break out between service revenues and product revenues, and in 2015, we're at a little over $530 million in product sales. That includes obviously most of the Safety-Kleen...

[Alan S. McKim:]

Yeah.

[James M. Rutledge:]

And also the regular all the other stuff that you mentioned before, Alan.

[Alan S. McKim:]

Yeah.

[Michael L. Battles:]

And Barbara, as we look into 2016 for budgetary purposes, we kept those metals flat from wherever we were as at the end of the year. We didn't assume an upside or downside in those metal prices.

[Barbara Noverini:]

Got it. Thanks for that detail.

[Alan S. McKim:]

Okay.

[Operator:]

Thank you. At this time, that concludes our Q&A session. I will turn the line back to Alan McKim for closing remarks.

[Alan S. McKim:]

Okay. Thanks for joining us today. We really appreciate your questions. The team is presenting at several upcoming conferences and getting out of the road meeting with investors. And so, we look forward to speaking with many of you in the weeks ahead. Have a great day.

[Operator:]

Thank you. This concludes today's conference. Thank you for your participation and you may now disconnect your lines at this time.