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Clean Harbors Inc (NYSE:CLH) Third Quarter 2019 Earnings Conference Call, November 3, 2021, 9:00 AM Eastern Time
Hi. Welcome to the Clean Harbors third quarter 2021 conference call. At this point, all participants are in listen-only mode. A short Q&A session will follow the formal speech. [Operator Instructions] As a reminder, this meeting is being recorded.
Now I am happy to introduce you to your host, Michael McDonald, the general counsel for port cleaning. Thank you, Mr. McDonald's. You can start.
Michael McDonald - Senior Vice President, General Counsel
Thank you Rob, good morning everyone. Joining me in today's conference call are Chairman, President and CEO Alan S McKim; Executive Vice President and Chief Financial Officer Mike Battles; President and Chief Operating Officer Eric Gerstenberg; and Senior Vice President of Investor Relations Jim Buckley. The slides of today’s conference call have been posted on our website, and we invite you to follow up.
The 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 reminded not to rely too much on these statements, which only reflect management's opinion as of today, November 3, 2021. Information about potential factors and risks that may affect the results of our actual operations is contained in the documents we submit to the SEC. Except for the approval of documents related to this reporting period, the company is not obliged to revise or publicly release any revised results of the statement made in today's conference call.
Today's discussion will include references to non-GAAP measures. Clean Harbors believes that this type of information provides additional metrics and consistent historical comparisons of its performance. The reconciliation of these measures to the most directly comparable GAAP measures can be found in today's press release, our website, and in the appendices of today's presentation.
Now, I want to forward the call to our CEO Alan McKin. Alan?
Alan S. McKim - Chairman, President and Chief Executive Officer
Thanks, Michael. Good morning everybody. In Slide 3, you can see the tremendous contribution we have made from our environmental services and Safety-Kleen sustainability solutions business, which truly achieved our highest quarterly revenue in history. In the environmental services sector, we benefit from a continuous flow of high-value waste in our disposal and recycling network. We also benefited from the recovery of many service businesses this quarter, especially our industrial services business.
The performance of the SKSS division exceeded our expectations. Market conditions have caused the refining spreads to remain wide throughout the quarter, and the team has performed well in a disruptive environment. Due to industry supply shortages and growing interest in our sustainable products, product demand throughout the third quarter was strong. There is no doubt that our industry has to deal with economic headwinds, including higher supply chain, labor and transportation costs. We confronted these people head-on and implemented a large number of necessary price increases to offset the ever-increasing costs.
Adjusted EBITDA increased by 10% from a year ago, and the profit margin was 19%. The adjusted free cash flow is in line with our expectations, and we are expected to achieve the new annual target.
Turning to our market segment starting from Slide 4, environmental services revenue increased by 15%. The favorable combination and pricing in our disposal network, coupled with the increased activity of many of our service businesses (including industrial and field services), have indeed driven year-on-year growth. Industrial services increased by 24% as customers continued to push for large turnarounds to reduce the backlog of maintenance projects delayed due to the pandemic.
Our basic field service business (excluding purification work) increased by approximately 25%, reflecting more typical scheduled work and other smaller response work levels. As expected, the adjusted EBITDA of the ES business unit declined compared to the third quarter of 2020, when we recorded a higher level of government assistance and more profitable COVID cleanup work. Excluding these items from the two periods, the adjusted EBITDA of the department will increase year-on-year. In the third quarter of this year, the department’s government assistance program totaled 1.1 million U.S. dollars, compared with 11.2 million U.S. dollars in the same period last year.
Significant inflationary pressures and third-party costs also appeared in the third quarter of this year, and we partially offset these pressures through higher revenue, pricing and cost mitigation strategies. The incineration utilization rate has increased by 82% over the previous year. We expect that the number of turnaround days in the fourth quarter will be reduced, and a higher utilization rate should be generated to end the year. Our measure of the expected utilization rate and current demand for disposal services is deferred revenue. As of September 30, deferred revenue was US$86.6 million, the highest level in our history. At the end of a very strong year, our kiln was still very busy.
In the third quarter, the favorable waste mix supported by our pricing initiatives increased our average incineration price by 18% from a year ago. Part of the growth comes from temporary high-value waste stream projects at our Canadian plant, but if we focus on our US incinerators, our average price has risen by 11% during the quarter.
Environmental remediation projects are still limited in the third quarter. As the resurgence of the Delta variant has led to an increase in cases in certain areas, many customers have postponed clean-up projects, and regulators have also eased the deadline for completion. As a result, the amount of landfills dropped by 5%. The strong basic business has driven the average price per ton to rise by 17%. Revenue from COVID-19 decontamination work totaled US$8 million this quarter, slightly higher than our expectations due to the increase in cases, but still significantly lower than the US$20 million in the third quarter a year ago. Demand for our core Safety-Kleen products was positive in the third quarter. Parts cleaning service this quarter was $232,000.
Moving to slide 5, SKSS's revenue increased by 60% to nearly $206 million, as product demand remained strong throughout the quarter. Compared with when the pandemic had a negative impact on production in the third quarter of last year, the prices of base oils and blended oils have risen sharply, and sales have also been higher. Adjusted EBITDA increased by more than 41 million U.S. dollars year-on-year, and the profit margin exceeded 30%. These results are driven by the further expansion of our refining spreads and the return to more typical production levels. The increase in SKSS's profitability also stems from the cost and productivity initiatives we have implemented in the past year as part of our organizational transformation.
For the first time since the pandemic began, the amount of waste oil collected exceeded 60 million gallons. In view of the profit opportunities of base oils and the shortage of additives on the market, the percentages of blended products and direct quantities are in line with expectations.
Turning to slide 6, we completed the acquisition of HydroChemPSC in early October, and we expect this transaction to contribute significant value to Clean Harbors in the next few years. We believe that the addition of HPC will bring economies of scale to our network and comprehensive resources. Therefore, after our first full year of operating HPC, we expect to achieve a synergy of at least US$40 million. And not included in the net figures are any cross-selling opportunities, and we believe this combination will have a broad foundation. The initial integration is progressing smoothly. We have begun to take advantage of HPC's leading position in industrial cleaning, professional maintenance and utility services, including its unique automation technology. As part of the Stronger Together brand promotion activities, we have held many senior management team gatherings. For me, these meetings have indeed strengthened the natural and cultural fit between our organizations, which are the cornerstones for accomplishing big tasks like this. I am excited about the opportunities ahead.
Turning to slide 7, we will continue to invest in capital expenditures to develop our business, especially in terms of disposal. After making many changes to the license, we completed a large investment in an incinerator in Utah this year. This investment allows us to increase the amount of waste handled in containers while managing waste within the total heat capacity of the installation. As we pointed out for the first time in the second quarter conference call, we are taking more action-actively advancing our plan to add a new incinerator in Kimball, Nebraska.
In terms of mergers and acquisitions, although the HPC transaction will soon be concluded, we plan to acquire Vertex's refining assets and it will take more time to complete. We are fully cooperating with the Federal Trade Commission as part of the Hart-Scott-Rodino review, which made additional requests for information. We are processing the request and now expect the acquisition to be completed in the first half of 2022. We will continue to look for opportunities, whether internal or external, which will generate the best return on capital. As HPC has led to a significant increase in our debt level and leverage ratio, we will more closely evaluate the future reduction of debt. Taking into account our other near-term capital priorities, we also intend to continue stock repurchases, albeit at a slower pace than in recent years.
So in the end, I am very proud of what our team has achieved, not only in the third quarter, but also throughout the year. We are executing-we are executing very quickly, taking advantage of favorable macro trends, and we benefited from the rebound in the industrial cycle, which really helped our service business. However, one aspect that has disappointed me recently is our safety. Following a strong start in the third quarter of July, there were too many security incidents in August and September. Fortunately, these are trivial things, but whenever someone gets injured, our performance is greatly reduced. We really work with our operational leaders to strengthen our safety practices and ensure that everyone understands the benefits of our safety starting from me culture.
We entered the last quarter of this year in good condition to end the excellent 2021. However, we do see the challenges posed by labor supply and inflation, as well as supply chain and transportation restrictions. Although we are not completely immune to these obstacles, our company is more capable than most companies to address these costs through aggressive pricing and cost reduction programs and productivity improvements. Therefore, I expect that we will perform well in the fourth quarter and enter 2022 with a very strong tailwind in terms of market demand.
So, let me give it to Mike Butters.
Michael L. Battles - Executive Vice President and Chief Financial Officer
Thank you, Ellen, and good morning everyone. Turning to the income statement on Slide 9, due to revenue growth of more than $75 million in each division, revenue increased by 22% in the quarter. It is important to know that almost all growth is organic.
Adjusted EBITDA was 10% higher than a year ago, reaching $185.1 million. Our EBITDA margin for the quarter was 19.5%. Calculated as a percentage, SG&A increased by 30 basis points year-on-year to 14%, mainly due to higher incentive compensation, severance pay and integration costs.
For the full year, using the midpoint of our HPC guidance range that now includes part of the fourth quarter, we expect the absolute dollar for SG&A to increase from the previous year, but remain flat or slightly decrease on a percentage basis.
Depreciation and amortization in the third quarter fell slightly to 71.5 million USD, in line with our expectations. For 2021, we now expect depreciation and amortization to be between US$295 million and US$305 million, including the impact of HPC.
Revenue from operations increased by 25%, reflecting our 22% revenue growth and the benefits of our pricing strategy.
Turning to slide 10, cash and short-term securities at the end of the quarter were US$711.5 million, an increase of more than US$140 million from the end of the year, and an increase of approximately US$45 million as of June 30. The debt at the end of the quarter was $1.55 billion, based on a net debt leverage of 1.4 times. With LIBOR's $1 billion 7-year term debt plus 2% to support HPC acquisitions, this ratio has changed significantly recently. Our weighted average cost of debt today, including our most recently issued debt, is 3.3%. Until 2024, we still have no debt due.
Speaking of cash flow on Slide 11, operating cash flow for the third quarter was stable at 102.8 million US dollars. Capital expenditures after disposal were $41.7 million, which is a significant increase from a year ago when the pandemic restricted our expenditures. Our capital expenditures for the quarter included $2.1 million related to the new incinerator we will build in Kimball. We provide adjusted free cash flow of $61.1 for the third quarter. For the full year of 2021, we still expect net capital expenditures to be between US$190 million and US$210 million, even if the initial expenditures for the addition of HPC and the new Kimball incinerator may total US$6 million to US$7 million.
In the third quarter, we repurchased approximately 33,000 shares at a total cost of $3 million. Of our $600 million authorization, we have more than $150 million left.
Turning to slide 12, based on our third quarter results, completion of HPC transactions, and current market conditions, we are improving our guidance for 2021. We now expect adjusted EBITDA to be between US$655 million and US$675 million, with a median value of US$665 million. This assumes that HPC contributed approximately US$15 million in this quarter, including integration costs of up to US$5 million, including severance payments.
Based on our year-to-date performance, the following is how our adjusted EBITDA guidance for the full year of 2021 is translated into our market segments. In terms of environmental services, we expect the adjusted EBITDA to decline slightly from the absolute basis for the full year of 2020. Higher profit margins for decontamination work are lower than a year ago, and our funding from government assistance programs in this area has been reduced by approximately $26 million. Despite these unfavorable factors, this decline has been largely offset-it will be largely offset by other factors, including necessary and widespread price increases, the higher profitability of our incineration business, our The benefits of Safety-Kleen branches, field services and industrial services, including increases and our comprehensive cost reduction measures.
For SKSS, we now expect adjusted EBITDA to increase by more than 150% over 2020 at the midpoint of our guidance. Driving this result is our extensive re-refining spread and the increase in our production level and collection volume compared to the same period last year. 2020. The adjusted EBITDA level will also allow us to be approximately 75% higher than the level delivered by the department in 2019. For reference, the department has received government funding-government assistance in 2020 is 3.7 million U.S. dollars. We expect less than half of that amount this year.
In our corporate sector, we expect negatively adjusted EBITDA to rise to around 10% starting in 2020, mainly due to higher incentive compensation and HPC increase. In 2020, we also received about US$3 million in government assistance from enterprises, and this year it is less than US$500,000.
For the full year of 2021, our adjusted EBITDA guidelines now assume that the total amount of government assistance is approximately US$12 million, mainly from Canada. Based on our current EBITDA guidance and working capital assumptions, we now expect adjusted free cash flow in 2021 to be between US$310 million and US$330 million, with a median value of US$320 million.
Finally, we achieved another excellent quarter in our two business units, especially in terms of revenue, because many of our business needs have returned to pre-pandemic levels. We are excited about the prospects of HPC. In terms of environmental services, we hope to benefit from our record backlog. As outlined by Alan, we are facing some cost and labor challenges, but we are confident in our ability to solve these problems. In SKSS, higher base oil pricing and effective spread management continued until the fourth quarter. We expect that as the supply normalizes, the spread will narrow at some point, but we will try to maximize revenue as much as possible. The team has done a very good job in driving the profitability of this segment.
With this, Rob, please open the phone in question.
Thank you. [Operator Instructions] Our first question comes from the line between Noah Kay and Oppenheimer. Please continue with your question.
Noah Kaye - Oppenheimer Corporation - Analyst
Hey, good morning everyone, thanks for answering this question.
Alan S. McKim - Chairman, President and Chief Executive Officer
Noah Kaye - Oppenheimer Corporation - Analyst
Hi. Are you OK? Maybe you can first talk about the acceleration of pricing initiatives that you mentioned in your prepared comments? I guess you think that as we enter 2022, what level of ES prices are needed to drive profit margin expansion in this segment? How confident are you in your ability to obtain this price? How much can you actually drive in F&S (including HydroChem), or does it need to come mainly from the processor?
Alan S. McKim - Chairman, President and Chief Executive Officer
No, I think—this is Allen. I think the pricing really needs to be comprehensive. Of course, as you know, transportation affects all parts of our business, and this is the biggest challenge we face in transporting waste, serving customers, and collecting waste. So we must know that when we have now maximized our own internal capabilities, we are limited in obtaining new equipment, obtaining trailers, and obtaining subcontractors to support us. So I want to say that transportation does have tentacles in all aspects of our business. However, when we consider future price increases, we realize that many other costs, materials and supplies, labor costs, fuels, other energy sources, natural gas, etc. are all rising. Therefore, our team that has been working here for many years is indeed advancing pricing initiatives across all business lines, which will not only take place this year, but will actually accelerate to 2022.
Noah Kaye - Oppenheimer Corporation - Analyst
OK, thanks. Are you confident that you can get enough prices to drive ES's profit margin expansion next year?
Alan S. McKim - Chairman, President and Chief Executive Officer
Yes, as you know, I think we must have some cost resistance in terms of labor costs and other costs. Therefore, we not only hope to offset these increasing costs, but also hope to get some profit margin expansion from them.
Michael L. Battles - Executive Vice President and Chief Financial Officer
Yes, Noah, I think the difference between this year and previous years is that the persistence rate is actually much better than we expected, and this situation will continue. I think the news is that people understand. They understand that their costs are rising across the board. Therefore, when we find customers who raise prices, they are happy to accept it.
Noah Kaye - Oppenheimer Corporation - Analyst
Yes. make sense. Just like HydroChem's follow-up, so far, you have provided some color for the integration. Can you tell us more about some of the key early plans and priorities that you focused on first? Then, is it possible to have any ideas on how the $40 million cost synergy will flow in the balance of the first year?
Alan S. McKim - Chairman, President and Chief Executive Officer
certainly. Well, of course, our first day plan was to start and run HydroChem on our platform, and we did it successfully. Now that the management team is in place, we have some excellent talents from HydroChem. Together with our team, we are very excited about moving forward. Obviously, we will strive to achieve some synergies in the next three months to end the year. Then into the next year, the focus will be on reviewing contracts, because we do have many overlapping customers in our business, so we will have to work closely with customers because we combine contracts so that we can move to 2022 in 2022 In the year, everything here belongs to one company. So it will be our main focus to rationalize these contracts.
Noah Kaye - Oppenheimer Corporation - Analyst
Okay, perfect. thank you very much.
Alan S. McKim - Chairman, President and Chief Executive Officer
Our next question comes from Jerry Revich from Goldman Sachs. Please continue with your question.
Jerry Revich-Goldman Sachs-Analyst
Yes. Hi. Good morning everybody.
Alan S. McKim - Chairman, President and Chief Executive Officer
Michael L. Battles - Executive Vice President and Chief Financial Officer
Jerry Revich-Goldman Sachs-Analyst
Can we talk about the pricing rhythm of incinerators? Therefore, based on the contract you signed in the fourth quarter and the plan that has been made this quarter, how much do you expect the price of incinerators to rise? Then back to the 3M announcement, because some of your customers have more time to deal with what 3M is doing, I would like to know if you have already inquired about potential similar arrangements to expand the scope of existing customers, possibly due to vertical integration in In the incinerator? thanks.
Michael L. Battles - Executive Vice President and Chief Financial Officer
Hi, Jerry. This is Mike. I will start and I will give it to Eric, who is with us today. So when you consider the third quarter pricing, as we said, as Allen said in the prepared comments, the third quarter incineration pricing increased by 11%. We have been asked in the past about the relationship between this combination and price. We have always said that two-thirds of the combination, one-third of the price. I think in the third quarter, it is more of two-thirds of the price, one-third of the combination. So we have got a lot of prices. With the renewal of the contract and even non-periodical discussions, we have been able to promote the incineration price at a fairly high price throughout the year. As you know, compared to last year, we have continued to promote the good price expansion of this business. So I hope that with the renewal of the contract and what we do-as Allen said, not just burning, but in all parts of our business, we have been able to drive-we will be able to drive prices-to drive business profitability. We are talking about 3M, I will give it to Eric and give you more colors.
Eric W. Gerstenberg - Chief Operating Officer
Yes, Jerry, this is Eric. Therefore, the start-ups that we have partnered with 3M continue to progress well. Throughout this year, we have been handling large quantities of cargo from them and continue to implement our strategy to provide services to all their locations. When we look at other captives in the industry, we have a relationship with every unit that owns a captive incinerator, and we will continue to work closely with them. They have been our customers for a long time. In some areas, we can continue to use our network to help them reduce costs. So it seems that there is indeed a chance before us.
Jerry Revich-Goldman Sachs-Analyst
Okay, great. Then in refining the spread, you mentioned a record quarter. Can you talk about how you view the standardized re-refining profit margin after IMO 2020? Now that the world is expected to return to normal after COVID, compared with the previous cycle level, in what ways do you expect the refining profit margins to be shaken?
Alan S. McKim - Chairman, President and Chief Executive Officer
Yes, I think when we look at the export of recycled fuel oil and our internalization of used oil and re-refining and converting it into base oil, we will definitely see the impact of IMO. So we can clearly see it in that market. We will enter the fourth quarter and winter, and our inventory will reach a record level with more than 40 million gallons of inventory, so we are ready to handle what we need in our facility. We are now looking for some substitutes for oil, because there is only one ton of oil around, I think this is obvious in IMO 2020 anyway. Therefore, I think that entering 2022, although we think that base oil prices may start to decline, I think the team responsible for operating this business unit that we established at the beginning of this year did a great job maintaining this spread. I think customers are very interested in our green oil. The whole idea of our sustainability plan, I think we could sell more direct lubricants to our customers, if it weren't for our shortage of additives and the hydrogen problems that the industry has encountered in obtaining hydrogen. So I think that next year, we will be able to offset some of the decline in base oil prices through further high-margin sales of mixed direct materials, because the demand is there and we only need to provide them with products.
Jerry Revich-Goldman Sachs-Analyst
I appreciate the discussion. thanks.
Alan S. McKim - Chairman, President and Chief Executive Officer
Our next question comes from the series by Tyler Brown and Raymond James. Please continue to answer your questions.
Taylor Brown-Raymond James-Analyst
Alan S. McKim - Chairman, President and Chief Executive Officer
Michael L. Battles - Executive Vice President and Chief Financial Officer
Taylor Brown-Raymond James-Analyst
Hey Mike, according to the guidance, it looks like you have raised the midpoint of your EBITDA by calling it $30 million. I think you raised 15 million dollars in HydroChem. But my hunch is, is there any moving part of the other 15 million dollars? I don’t know if you look at it this way, but can you make up for the other 15 million dollars? I know you have good guidance, such as wider spreads, and then maybe something is not good for you, but can you exclude some of them?
Michael L. Battles - Executive Vice President and Chief Financial Officer
Of course, Taylor. So it is really an addition of HydroChem. To clarify, when you talk about HydroChem, it has up to $5 million in severance and integration costs. And on a monthly basis, the business is not linear, right. We are talking about the business’s total EBITDA of US$100 million, but the US$15 million in the fourth quarter looks quite light. We did not purchase the business until after the first week of October. October is a great month for industrial companies with many changes, while November and December tend to be slower. Therefore, it is important to note that $15 million is not-please do not use $15 million as your run rate from math exercises into 2022, I know you like spreadsheets. -When you think about other things, it is true that I have always thought that spreads are beginning to shrink. I did not see this happening when we sat here talking to you, so this allowed us to improve our guidance again in the fourth quarter. There are a lot of moving parts, whether it's severance pay, integration costs, or other things we are doing, but what I want to say is that at a high level, this is just pushing it.
Taylor Brown-Raymond James-Analyst
Okay, this is very helpful. Then, Allen, with regard to pricing flexibility, I mean, I can handle it, maybe even charge SK's oil, maybe even an emergency response. But in these industrial cleaning contracts, how much pricing flexibility do you have? These contracts may be upgraded every year, or can you go back and get in touch with pricing more frequently?
Alan S. McKim - Chairman, President and Chief Executive Officer
Taylor Brown-Raymond James-Analyst
Alan S. McKim - Chairman, President and Chief Executive Officer
Yes, I think our relationship with many large industrial customers must have changed in the past year and a half. We gave back a lot of price concessions. Although we signed a firm contract for a fixed price, we returned millions of dollars through pricing concessions in 2020. When we went back to those customers and others, and realized, yes, we have signed contracts, and maybe some of these contracts will not be renewed within a year or two, but we are also raising prices to these customers. We will go back and get these concessions, and then there will definitely be some concessions. Due to labor shortages or the inability to obtain equipment and transportation costs, none of our customers who do business with us have not been touched by all these supply chain issues we read in our papers. So, frankly, our feeling is that if we can't get that kind of profit for the risks we take, we won't continue to do business. We will continue to move forward and share these resources with other customers, where we can make a profit, and then we can recoup the cost increase we have seen.
Taylor Brown-Raymond James-Analyst
Okay, this is very helpful. Finally, I know it’s still early, but is there any benefit to capital expenditure next year? I assume that your Kimball spending will increase significantly.
Michael L. Battles - Executive Vice President and Chief Financial Officer
Yes, Taylor. So you have a few things. You will add HydroChem, which will generate a fair amount of EBITDA. But they also need funding. We have about $55 million, which we discussed before, for the incinerators lined up in 2022.
Taylor Brown-Raymond James-Analyst
So is mid 2s a good placeholder or could it be 3?
Michael L. Battles - Executive Vice President and Chief Financial Officer
Well, we must complete the budgeting process, which includes capital budgeting. So I don't want to give guidance for 2022 in this conference call.
Taylor Brown-Raymond James-Analyst
Alright alright. Appreciate it. Thank you.
Our next question comes from Michael Hoffman and Stifel. Please continue with your question.
Michael E. Hoffman - Stifel Nicolaus - Analyst
Hey, thank you very much. Alan, if I can start with safety, I'm glad you shared this with us. So what do you think happened? Does everyone have to work so hard because they are such a labor problem, and then you have to bring your attention back to that? Then I want to follow up a labor issue.
Alan S. McKim - Chairman, President and Chief Executive Officer
Yes, I think we have seen it in the past 18 months, and many of us think it is just a huge distraction, especially during the pandemic. People, we just think they are not focused. There are a lot of slips, trips and falls, potholes and sprained ankles. We didn’t see serious injuries, but we just saw a lot of these small and crazy things, otherwise we would never see what I thought was Before the past 18 months or so. So I think we might be distracted at this point.
Michael E. Hoffman - Stifel Nicolaus - Analyst
Alan S. McKim - Chairman, President and Chief Executive Officer
But the combination of our TRIR and HPC will definitely be close to 1 or even lower than 1, because we now have more billable hours. But I think we have just experienced this kind of destruction, and I think this is the cause of some of these problems.
Michael E. Hoffman - Stifel Nicolaus - Analyst
Then the labor issue, my view is that the total addressable pool has been permanently reduced, because this will not-you can't solve this problem by paying more money, so how do you solve the problem of addressable pool expansion? port? Where do you plan to expand this pool so that you have people you can try and hire?
Alan S. McKim - Chairman, President and Chief Executive Officer
Yes, I think we have to really think about all places, whether it’s a trade school or a maritime college, or entering a driving school or the military. We now have nearly 800 military personnel, and former military personnel now work for us, so this is a good place for us to recruit, and we have established some really strong relationships with the military there that we want to expand. But we must do better. We are short of thousands of people. Our income is limited by staffing, and we also know that from a safety perspective, employees in the first year tend to have a higher accident rate than other employees. They work here longer, more experienced, and better experienced. Training. So we really need to redouble our investment in training, onboarding, and really work hard to fill our vacant key positions in this field.
Michael E. Hoffman - Stifel Nicolaus - Analyst
OK. Then, Mike, can you help us-we are modelers and spreadsheets, so what do you want us to use for HydroChem's rollover M&A sales and EBITDA?
Michael L. Battles - Executive Vice President and Chief Financial Officer
Yes, so if you say 15 million dollars, let’s say, 3 million dollars in severance and integration costs, that is-then we have publicly said 115 million dollars plus 20 million dollars, 25 million dollars in integration synergy costs , So you can do mathematical calculations on this, and you can get the flip number from there.
Michael E. Hoffman - Stifel Nicolaus - Analyst
OK. So I take 115 million U.S. dollars minus 15 million U.S. dollars, and then help me take 3 million U.S. dollars. This 3 million U.S. dollars is an increase of 15 million U.S. dollars, so it is a negative number. Is it really 12 million U.S. dollars?
Michael L. Battles - Executive Vice President and Chief Financial Officer
Therefore, assume that this quarter is $15 million. Therefore, assuming this quarter is 15 million U.S. dollars, we publicly revised 115 million U.S. dollars, plus 20 million U.S. dollars, 25 million U.S. dollars in coordination costs, then you will get 135 million U.S. dollars, minus 15 million U.S. dollars may be 115 million U.S. dollars The run rate.
Michael E. Hoffman - Stifel Nicolaus - Analyst
understood. OK. OK. and then -
Michael L. Battles - Executive Vice President and Chief Financial Officer
Michael E. Hoffman - Stifel Nicolaus - Analyst
understood. Then, if my calculation is correct, the price of used oil SKSS in 2019 may be as high as US$100 million. As Allen suggested, some of these must benefit from the IMO. Therefore, when the numbers are corrected, I am interested in that HPC has 115 million U.S. dollars and Vertex may have 15-20 million U.S. dollars per year. So I think we can have a conversation and say that even if this is corrected by 100% on January 1, you will not be disappointed. You are flat, maybe upward, everything else-there is no growth anywhere else. Is this the right way to start the thinking process about '22?
Michael L. Battles - Executive Vice President and Chief Financial Officer
Yes, so we have to complete the budgeting process, which includes board review and capital expenditure budgeting, so it is difficult to talk about that situation so precisely. But what I want to say is-when you think about communication, as we talked about before, Michael, these are three things. This is the impact of IMO 2020. What I want to say is the strong communication management of the team we established earlier this year, and the impact is very wide. I don't know, it's really hard for me to predict when it will be resumed-when the contract will be. If that contract, it would definitely not happen on January 1. As you know, it takes a long time to get here. It also takes a long time to return to a normal state. I don't know what is normal. So it's really hard-I mean, I think, I personally think that for us and people in our industry, this will be the toughest budget and the toughest guidance we have to do in our time here One, because it will be really hard to predict. If it really returns to the pre-pandemic situation, if it does, then it will be very difficult for me. The good news is that I don’t want to disclose it today. I have time to think about where we are now. We will discuss this in February. Look forward to it.
Michael E. Hoffman - Stifel Nicolaus - Analyst
alright, thank you very much.
Michael L. Battles - Executive Vice President and Chief Financial Officer
Thank you. [Operator Instructions] Our next question comes from Jim Ricchiuti from Needham. Please continue with your question.
James Ricchiuti - Needham & Company - Analyst
Thank you. Good morning. You talked about the stagnation of some projects in the ES business. At least in your slides, you talked about the outcome of the pandemic. Just as we have begun to see that recently there seems to be hope to alleviate some of the concerns about the Delta, should we see this shift? I think you have already started.
Alan S. McKim - Chairman, President and Chief Executive Officer
We have a good pipeline, but Eric, maybe you want to comment on this.
Eric W. Gerstenberg - Chief Operating Officer
Yes, Jim. Obviously, as we experienced this year, our pipeline has been increasing quarter by quarter. Difficulties arise when many of these projects cannot obtain permits to proceed and carry out the required clean-up work. As a result, the licensing process continues to be delayed, but our pipeline has grown. Our visibility of the project today is much better than a year ago. We do foresee that as we enter the fourth quarter and enter 2022, our site will have a stronger project business.
James Ricchiuti - Needham & Company - Analyst
understood. As far as HPC is concerned, I certainly appreciate the short-term goals you need to integrate your business, but you also talked about cross-selling opportunities. I want to know how soon in 2022 we can start to see its benefits?
Alan S. McKim - Chairman, President and Chief Executive Officer
Yes, at least I will start. I think we do look from a sales point of view, we have now grouped our sales organization together, I think looking at the blank areas that exist in the top 40 or 50 HPC accounts, and vice versa, Clean Harbors as well, So I think the team did a good job in the first few weeks and started to develop strategies for some of the gaps in the contracts. Each of us must share our capabilities in these accounts. Not sure, Eric, do you want to add anything?
Eric W. Gerstenberg - Chief Operating Officer
Yes, I would say that in the early days, our two teams are now united and very excited about the cross-selling opportunity. You only consider oil refineries and chemical plants. Before the acquisition, it was clear that HydroChem really only did things like industrial cleaning and leak detection and repair. The joint forces have the opportunity to carry out additional material processing, tank cleaning, transportation and handling of these tank cleanings together. Therefore, our team, our sales staff work together, in fact, they have started to expand cross-selling with our customer base.
Michael L. Battles - Executive Vice President and Chief Financial Officer
Jim, as we have given these numbers in earnings, in our acquisition-related announcements and through our earnings conference call, our model does not include any cross-selling.
James Ricchiuti - Needham & Company - Analyst
understood. As far as HPC pricing is concerned, I assume that you see the same dynamics in the ES business. Did they-what did they do in terms of pricing, because we have seen some of this inflationary pressure really increase, or is this a problem you are solving now in HPC, this part of the business?
Alan S. McKim - Chairman, President and Chief Executive Officer
Yes, I want to say that we are only solving this problem now. Throughout the integration process, we have been restricted from viewing any pricing data until the end of the transaction. So, with the closing taking a place on the 8th, we have indeed been actively trying to study all of these since then. But what I want to say is that in the three months before signing our agreement, HPC did a great job of managing pricing with the customer base, but — and had to pause during the integration process. So I think we can be more active now and try to keep everything in progress at least in the near future.
James Ricchiuti - Needham & Company - Analyst
understood. thank you very much.
Alan S. McKim - Chairman, President and Chief Executive Officer
Thank you. Our next question comes from the cooperation between Jeff Silber and BMO Capital Markets. Please continue to answer your questions.
Jeff Silber - BMO Capital Markets - Analyst
thank you very much. I want to shift the topic to what is happening in Washington. I know things are not finalized yet, but you still have a few months to see some of the plans they have been talking about come from an infrastructure perspective and so on. Any indication of what impact this might have on your business in the next few years?
Alan S. McKim - Chairman, President and Chief Executive Officer
I think one of the key things is to reduce the driver's age to 18 years old-we have done a lot of routes, we have done a lot of actions, which can greatly help us to be faster on the new generation of drivers. I think this will help solve this problem. But I thought, I don’t know, Eric, do you know our current attitude towards PFAS? I know this is a big topic raised by people.
Eric W. Gerstenberg - Chief Operating Officer
Yes, PFAS is still an important point. Obviously, the US Environmental Protection Agency issued a PFAS policy statement in October, and their first concern in the next year or two is drinking water and groundwater. We will continue to pay close attention to the progress of the legislation they hope to create and the levels and restrictions they will deploy. But this is still an opportunity for us, but it will be a long, long time, and it will be really long in 10 to 20 years. This is how we look at it.
Jeff Silber - BMO Capital Markets - Analyst
Okay, this is very helpful. Just continue to discuss the regulatory environment, I don’t know if you can give us more color on the issue of the closure of Vertex Energy, and what milestones should we expect in the next few months before the closing of the transaction? thanks.
Michael L. Battles - Executive Vice President and Chief Financial Officer
Of course, Jeff. Therefore, as we mentioned, we did receive a second request from the Federal Trade Commission. We are working hard to respond to this, which includes providing all the data we need in order to make a thoughtful response to the government. Before that, we were just working-the business will continue as an independent independent listed company, and so will we. So we are all at work-we all have a list of things we have to do, we are going to-we work hard every day.
Jeff Silber - BMO Capital Markets - Analyst
OK. very fair. thank you very much.
Michael L. Battles - Executive Vice President and Chief Financial Officer
[Operator Instructions] Thank you. This concludes our Q&A session. I will ask Mr. McKim to finish.
Alan S. McKim - Chairman, President and Chief Executive Officer
Okay, Rob. thanks. Thank you for joining us today. We will attend the Baird Industry Conference next week, and of course some other conferences before the end of the year. Therefore, we look forward to talking to many of you at these events. Live a safe life.
Michael McDonald - Senior Vice President, General Counsel
Alan S. McKim - Chairman, President and Chief Executive Officer
Michael L. Battles - Executive Vice President and Chief Financial Officer
Eric W. Gerstenberg - Chief Operating Officer
Noah Kaye - Oppenheimer Corporation - Analyst
Jerry Revich-Goldman Sachs-Analyst
Taylor Brown-Raymond James-Analyst
Michael E. Hoffman - Stifel Nicolaus - Analyst
James Ricchiuti - Needham & Company - Analyst
Jeff Silber - BMO Capital Markets - Analyst
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