Clean Harbors Inc

NYSE:CLH

Earnings Call Transcript 2019-Q4

[Operator]

Greetings, and welcome to the Clean Harbors, Inc. Fourth Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors, Inc. Thank you. Mr. McDonald you may begin.

[Michael McDonald, General Counsel]

Thank you, Melissa, and 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; 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 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 today, February 26, 2020. 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 revision to the statements made in today's call other than through filings 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. Reconciliations of non-GAAP measures to the most directly comparable GAAP 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?

[Alan McKim, Chairman, President and Chief Executive Officer]

Thanks, Michael. Good morning, everyone. Thank you for joining us.

Starting on Slide 3, before discussing our financial results, I want to speak to our safety performance. I'm proud to report that 2019 was the best safety year in our history with our total recordable incident rate and other key metrics at record lows. Over the past five years, we have seen our focus on safety drive real positive results for us and have helped us protect our work force better and better each year. And our highest priority at the company is that each employee's goes home uninjured every day.

Turning to our financials, we concluded 2019 with another quarter of profitable growth in Q4, led by environmental service segment which achieved better than expected results on a combination of higher landfill and incineration volumes, project wins and strengthen our field services. On the top-line the SK branch business and our field service group offset some industrial and energy-related weakness and sluggishness in SK Oil.

Revenues were up 1% for the quarter and favorable business mix drove an 8% growth of adjusted EBITDA and a 100 basis point improvement in margin.

For the full year, adjusted EBITDA grew by 10% on a 3% increase in revenue and we generated record adjusted free cash flow of $208.5 million. Credit for our results belongs to our entire team who not only helped us set some financial records, but did so safely all year.

Turning to our segment results beginning with environmental services on Slide 4. Revenues were up modestly as our facilities and field services offset some softness in industrial and energy services. High single-digit adjusted EBITDA growth fueled 140 basis point margin improvement as the segment top 20% for the third straight quarter. As it relates to our facilities, it was largely a volume story this quarter.

Incineration utilization increased to 89% and landfill tonnage was up 40% from a year ago. We had some sizeable projects that fed both our incinerators and landfills. Our average price per pound for incineration in Q4 was flat with a year ago primarily reflecting the effects of a large project that we did in Q4 2019 that delivered a significant amount of low price volume, average incineration price per pound for the full year rose 11% from 2018 largely due to enhancements at our facilities which can now handle a mix of higher value waste streams. While there were no major emergency response events in the quarter, for the full year, we recorded approximately 15 million of ER revenue.

Moving to Slide 5, Safety-Kleen revenue was up 2% on growth in our SK branch business and pricing of our core services, which offset year end weakness in base oil and blended pricing. Adjusted EBITDA and the segment dipped 1% and margins declined from a year ago due to a lower pricing in SKO oil and a drop in value of certain byproducts and our re-refining process in the early days of IMO 2020.

Parts washer services were up from a year ago. Waste oil collection volumes were healthy at 55 million gallons with a charge-for-oil rate that was higher than a year ago and above Q3's rate. Our direct lube volumes grew by approximately 30% in the quarter and the business accounted for 7% of total volumes sold in Q4.

Total blended product sales in Q4 were 24%, up from 22% a year ago. And for the full year our volumes of direct lube sales grew by nearly 25% and we continuously steadily grow this business. And we believe will ultimately reach our long-term goals for blended volumes as the market for sustainable products continues to expand.

Turning to our strategic update on Slide 6, our outstanding team of employees is integral to our success and a competitive differentiator for Clean Harbors. During 2018 and 2019, we made substantial investments in our workforce including greater retirement and healthcare benefits as well as higher employee compensation. In 2020, we are again raising our 401k contributions and absorbing all healthcare costs increases resulting in millions more of incremental spend on our workforce.

In 2020, as we have in prior years, we're pursuing a broad array of cost savings that we will believe will more than offset these investments. Profitable growth remains a primary focus for us in 2020, we've taken significant steps forward over the past three years and we want to extend that momentum. Our disposal recycling network will continue to be the cornerstone of our success. In the coming year, we intend to further leverage our facilities and service locations through pricing and mix initiatives along with greater project volumes and cross selling opportunities.

We're also in the early stages of rolling out our new eCommerce platform to enable customers to request our products and some services online. By taking a next day delivery approach to delivering our products and services, we intend to make Clean Harbors and Safety-Kleen much easier to do business with. We've always been forward thinking company as it relates to technology in our industry and we think eCommerce holds great promise for us. And in addition, we're rolling out the use of our AI technology to have our customers more directly interface with our waste profile systems to expedite the approval and acceptance process for hazardous waste disposal services.

Customers will be able to use our eCommerce platform to schedule their own waste pickups. The customer experience be much more improved and our ability to manage orders or deliver services will be enhanced as well.

Another key strategy for this year is capitalizing on the shifting market conditions brought on by IMO 2020. We've already seen the rule drive changes in the value of high sulfur fuel oil as well as low sulfur fuel oil. However, the crude oil and base oil markets today remain in a state of flux with pricing disruptions caused by the global Corona virus impact. While the IMO regulation took effect in January 1, ships have until March to come into compliance with the rule. So we don't think any will have any real clarity on the impact from IMO 2020 for another couple of months.

In the interim, we're aggressively managing our spread. With the decline in high sulfur fuel oil that began late last year, we're continuing to push for increasing charge for oil rates on our used motor oil and maximizing our collection volumes. In addition, in 2020 we expect to pursue emerging growth opportunities such as PFAS and take full advantage of the growing market acceptance of our sustainability offerings.

And as I outlined on our Q3 call, we provide a broad array of sustainability focused services that go beyond our being the largest collector and recycler of waste oil. Sustainability is core to our brand, which is why we made it central theme of our recent marketing campaign. Sustainability as part of Clean Harbors DNA for 40 years and we expect it to only become a larger part of our story in years ahead.

Turning to Slide 7, we continue to regularly evaluate all four elements of our capital allocation strategy. In 2019, we invested just over 200 million in capital assets added two successful bolt-on acquisitions, divested a small non-core business in Western Canada and repurchased our shares.

In terms of our debt, we refinanced the final large tranche that was due in 2021 reducing our overall borrowing costs. And as Michael will cover in his remarks, we entered 2020 with a strong balance sheet -- strong cash balance, and we'll look to generate a highest level of returns with that capital.

In summary, we achieved record adjusted EBITDA, adjusted free cash flow, EMR, TRIR in 2019. The underlying dynamics in both our operating segments remain positive and we anticipate a strong 2020 which also happens to be our 40th anniversary as a company and for me personally, it's something that I'm really proud of and we have lots of plans to celebrate that exciting milestone with the teams this year.

So would that, let me turn it over to Mike Battles. Mike?

[Mike Battles]

Thank you, Alan, and good morning everyone.

Turning to Slide 9, in our income statement, as Alan indicated, we delivered good profitable growth in Q4. We increased revenue by 12.8 million which represents 1% growth from the prior year. Adjusted dividend grew by 10.3 million. This reflects a mix of business, we experienced in the quarter, pricing initiatives and operational efficiencies.

From a gross profit perspective, we saw a decline in Q4 on both an absolute dollar and percentage basis from a year ago due to business mix including the project work associated with the 2008 California wildfires and higher costs related to labor, insurance and healthcare expenses.

Just to touch on insurance for a moment, like many companies, we are seeing costs in nearly every type of insurance rising, particularly property, auto and excess casualty. We will continue to drive our cost saving initiatives to offset these higher insurance costs as well as to continue to focus on safety to lower incidents and incident severity.

On a full year basis, gross profit increased by approximately 30 million with gross margin, essentially flat year-over-year. SG&A expenses were down significantly in the quarter compared with a year ago, declining by 18.4 million, which drove a 240 basis point improvement in percentage terms. In Q4 of 2018, we had significant bad debt charge associated with the customer bankruptcy even asset that one-time item. We had a considerable improvement driven by higher revenue within both operating segments and lower corporate costs due to a series of cost saving initiatives, moving employees to lower cost jurisdictions and reduced incentive compensation compared with a year ago.

On a full year basis, SG&A expenses were down 110 basis points. For 2020, using the midpoint of our guidance range, we would expect SG&A to be up in absolute dollars from the prior year and slightly up on a percentage basis given the onetime benefits we experienced last year.

Depreciation and amortization in Q4 was down slightly to 77.4 million while it was up slated for the full year as we lost some assets we've added from tuck-in acquisitions and capital spending. For 2020, we expect appreciation and amortization in the range of a 290 million to 300 million, which is consistent with the past two years.

Income from operations in Q4 increased 26% to $52.3 million reflecting the combination of our revenue growth and improved SG&A spend. This is the same-story with the full year as our annual income from operations also rose 26%.

On a GAAP basis EPS is $0.43 in Q4 versus $0.29 a year ago. Our adjusted EPS was $0.42. For the full year 2019, EPS was $1.74 versus $1.16 in the prior year and adjusted EPS rose 50% to $1.86 fro $1.26 in 2018.

Turning to the balance sheet on Slide 10, cash and short-term marketable securities at year end totaled 414.4 million up more than 85 million from September and in line with our expectations. For the full year, we increased cash on the balance sheet by 135 million. Our current and long-term debt obligations at year end were about 1.5 6 billion down 11 million from the prior year -- from a year ago primarily due to mandatory payments under our term loan. Our weighted average cost of debt is about 4.5% through a healthy mix of fixed and variable debt. We conclude the year with a strong balance sheet and we sit at 2.1x levered at year end on a net debt basis.

Turning to cash flows on Slide 11, cash from operations in Q4 was up slightly to 128.5 million. CapEx net of disposals was 39.1 million up from a year ago resulting in adjusted free cash flow in the quarter of 89.4 million. From an annual perspective we ended 2019 with net CapEx spend of 204.7 million and adjusted free cash flow was 208.5 million in line with our free cash flow guidance. For 2020, we expect net CapEx of 195 million to 215 million, which at the mid-point is essentially flat with the prior year. This number excludes the capital spend of 20 million to 25 million related to the purchase of and investments to be made in our corporate headquarters in 2020. Given the expansion plans, we have in this property, it made economic sense to make this one-time purchase of our headquarters as it recently came on the market.

During the quarter, we repurchased 59,000 shares of our stock at an average price of $84.28 a share for a total of 5 million. For the full year, we bought back 299,000 shares at an average price of $71.65 a share for a total of 21.4 million. We remain committed to returning capital to our shareholders through our buyback program and will continue to be opportunistic based on the stock price.

Moving to guidance on Slide 12, based on our 2019 results and current market conditions, we expect 2020 adjusted EBITDA in the range of $545 million to $585 million. The midpoint of that range represents a 5% increase from 2019.

Looking at our guidance from a quarterly perspective, we expect growth in Q1 adjusted EBITDA to be in line with a full year with steady growth in the business, pricing gains and operational efficiencies.

Here's our full year 2020 guidance translates from a segment perspective. In environmental services, we expect adjusted EBITDA to increase by a low single digit percentage in 2020. This growth will be driven by continued higher value waste streams in our facilities, pricing gains, projects and increases in various lines of business across multiple regions.

For Safety-Kleen, we anticipate adjusted EBITDA growth in the mid to high single digit range. We expect to see steady profitability growth in the SK branch business to the pricing and operational efficiencies. We expect an expansion and Safety-Kleen oil based on more effective spread management and continued increase in blended sales.

Our guidance today does not include any favorable impact from IMO 2020 and as it is too early to determine its impact.

Our corporate segment -- in our corporate segment, we now expect negative adjusted EBITDA to grow by a low single digit percentage from 2019 due to increases in benefits as we continue to make investments in our workforce. Based on our current guidance and working capital assumptions, we expect the 2020 adjusted free cash flow in the range of 210 million to 240 million.

In summary, Q4 was a solid conclusion to 2019. Overall, the company delivered an excellent year as we met or exceeded our guidance in all four quarters. Margin performance and cash flow generation throughout the year were strong and consistent with our goal to deliver on our promises and hit our targets. As Alan outlined, our core lines of business entered 2020 with healthy momentum and some favorable trends. We expect another profitable year -- another year of profitable growth for Clean Harbors in 2020.

And finally, I wanted to mention that in addition, in addition to our normal full slate of more than a dozen conferences and investor events, we intend to host an Investor Day in the back half of this year. We are currently targeting mid-September, but we'll issue a save the date announcement once we finalize a date and location. At this event, we will showcase our broad management team strength, outline our strategies for growth for each business and provide some longer term targets for the company.

With that Melissa, please open up the call for questions.

[Operator]

Thank you. We will now be conducting the question-and-answer session. [Operator Instructions] Our first question comes from the line of Noah Kaye with Oppenheimer and Company. Please proceed with your question.

[Noah Kaye, Oppenheimer and Company]

For incinerator, appreciate you calling out the large project impact on pricing trend this quarter. But still you got double-digit price growth for the year. What is sort of the right price mix range that we should be thinking about on incineration for 2020? What do you have on the guide?

[Alan McKim, Chairman, President and Chief Executive Officer]

And so I think that at the end of the day, we've had a steady growth of both mix and price. And as we said in previous calls, two-thirds mix, one-third price, I think that continues into 2020. I think that we still have kind of a strong mix as we entered Q4 of kind of higher value waste streams and we continue to manage our price and increased prices on customers and we'll do that. And we did that in 2019. We're going to do that 2020 going forward.

[Noah Kaye, Oppenheimer and Company]

So maybe then, just that alone should give you really nice EBITDA growth if that's sustained in 2020. How should we think about maybe some of the offsets that you're thinking about within ES?

[Alan McKim, Chairman, President and Chief Executive Officer]

I mean the incinerators in Atlanta have done really well. We've had had some struggles in the industrial services business. We've tried to expand margins in that business and we'll continue to do that. We're not planning on a lot of good growth out of that business in 2020 as we think about it. We're trying to hold the line and take some costs out and manage that more profitably.

[Noah Kaye, Oppenheimer and Company]

Excellent. At a high level, what are you going to do with all those cash? I mean, it's really the question now, you talked about it a little bit in the prepared remarks, but at this trajectory you're going to be under levered, you generating a lot of cash this year, exiting the year with a high cash balance. Can you tell us a little bit about, just as it sits today, your thoughts on prioritizing debt repayment, M&A or share repurchases, where is sort of the bias at this point?

[Mike Battles]

I mean, clearly we would like to do a significant acquisition at a reasonable price and we are really well positioned to do that. We have certainly been looking at a lot of deals. There's been a lot of deal books flowing around. And I think we're well positioned to do that. We've also been certainly trimming some of the one off businesses that we have that maybe came through prior acquisitions and as we mentioned, sold a couple of businesses. We actually sold one yesterday. So we're really, I think doing all the things to position ourselves to be really laser focused on our environmental business and our Safety-Kleen business and looking at opportunities through acquisition to expand those businesses. That would certainly be my top of the list priority for the cash.

[Operator]

Thank you. Our next question comes from the line of Luke Junk with Baird. Please proceed with your question.

[Luke Junk, Baird]

So a first question just regarding IMO 2020, I appreciate it's still early here, but just curious anecdotally at least what you're seeing on the ground from blenders and other purchasers of used motor oil so far this year. And in a similar vein, just wondering how are you seeing the state of the utility export market for sulfur fuel oil right now?

[Mike Battles]

Yes. I can start, we really came into the New Year here with things looking really favorable as it relates to IMO 2020, we started seeing high sulfur fuel oil, really come down in value and really become quite oversupplied. And we also saw base oil prices begin rising all the major base oil suppliers. So everything sort of was playing into what we had forecasted. And then, I think over the last six weeks, there's certainly been some significant disruptions on finished products, whether it be jet fuel or fuel oil or other products like base oil and as well as crude oil decline, a significant decline in crude oil. So it's a little bit difficult for us to really anticipate what the end result will be for IMO 20 particularly because all the ship owners need to come in full compliance with no exemption after March.

But you've still got this whole global, sort of crisis going on right now. And it's sort of given us uncertainty about just what we would benefit from IMO 2020 this year. On the used motor oil side, volumes are very strong for us. Certain parts of the markets are very long. The outlets for oil is very constrained. We are communicating with our customers to keep them informed making sure that they know that we will be there for -- to be their service provider because a lot of the outlets have dried up for used motor oil that's not going into a re-refining operation.

[Luke Junk, Baird]

That's great. And then, I guess along a similar line, there's obviously been quite a bit of movement in base oil prices so far this year as you noted Alan, line of increases a month or so ago now, some concerns around corona virus starting to creep in more recently. Can you just help us understand what's baked into the guidance for base oil pricing sitting here today?

[Mike Battles]

Luke, I'll take that one actually. And so I -- we've tried to say kind of base oil pricing kind of as it stands today with the price increases and the price decreases. As we always try to do this, we try to take up very kind of where it is today and that can change obviously tomorrow, but our guidance includes the price drops that happened very recently if you will.

[Luke Junk, Baird]

Okay. That's helpful. And then last question, just --, I don't know if you have a number here in terms of the --

[Alan McKim, Chairman, President and Chief Executive Officer]

Luke one more thing, I wanted to stress that the base business is very strong. So we've talk about IMO and we're talking about -- we're going to manage our spread and we think that the rest of the business, whether it be the SK branch business, whether it be the ES business, and that's going to continue to be very strong and we don't see anything out there that, we get a little stuck on IMO. We don't see anything out there that would cause us pause and we really are very, very bullish on 2020. So I want that to be very clear here that. We're not guiding for IMO. We're concerned about base oil price dropping and all that good stuff. But the underlying base business and our ability to manage the spread, nothing has changed there and we're really very positive on it.

[Mike Battles]

So, I think when we put together our budgets and got those approved in December that was based on pricing at that point. And even though pricing went up in January and all the majors went up and we're starting to see some price declines today. Our price and which in our forecast for the year was based on that old price. So we're probably doing pretty good.

[Alan McKim, Chairman, President and Chief Executive Officer]

We're probably okay.

[Luke Junk, Baird]

Okay. That's helpful. And then just last question on the base business, just wondering if you could expand on the opportunity from here to continue to drive those high value waste streams into your network, both in terms of what the market's giving you and any additional internal actions that you've taken to free up capacity?

[Mike Battles]

Yes. We continue to look for ways to debottleneck and add more processing capacity at our incinerators to get more throughput. And that really over the next two or three years, we're going to continue to invest capital, whether it be in shredders or in feed systems. We have a very large backlog of waste coming into the year.

Our deferred revenue is up, our volumes and inventory are strong. And quite frankly, the demand for a lot of our customers is very strong right now. The chemical industry is really very strong for us and looking at those real difficult waste streams. And we've seen some chemical plants coming online. So I think our expectation on incineration as we continue to look at ways of getting more of volumes through our network of incinerators because we have a very strong backlog there.

[Operator]

Thank you. Our next question comes from line of Michael Hoffman with Stifel. Please proceed with your question.

[Michael Hoffman, Stifel]

Mike again asked my favorite question. So your cash conversion has actually improved quite nicely. I mean in '16 you were 17.5% of EBITDA for a free cash flow and now you're up to almost 40. How would you -- and then a cash flow from ops is going to remain 4% of sales to 12. Where are we in your sort of rolling five year plan of where this could go?

[Jim Buckley, Senior Vice President, Investor Relations]

Yes. That's been really a function of, as Alan mentioned in his remarks to kind of better systems and processes to kind of come to get the bills out the door and get the cash in the door. And I think that is -- we have a lot of customers and it takes a lot of work and there's a lot of hard effort by -- led by the team here in Norwell to kind of really drive that and you're starting to see that in the results.

I'm hopeful as Alan talks about, better technology and a focus on that. We'll continue to see that type of better conversion and getting our bills out faster, having better terms and conditions and as such, getting our cash faster and driving, working capital down. So I'm really pleased with, as you say Michael, we've had some decent progress in that area. As far as dividend to cash flow conversion, I'm hopeful that just continues.

[Michael Hoffman, Stifel]

Okay. So there's upside to these ratios and that's a combination of efforts around financial controls is also -- that's demonstrating the sort of predictable repeatability of the operating leverage of the fixed assets too, right? I mean that's the way to look at it. Right?

[Jim Buckley, Senior Vice President, Investor Relations]

And you see it now in ROIC too, no matter how you calculate it, we've actually had a huge increase in ROIC over the past two or three years and in our metrics how we calculate it, it's doubled over the past few years.

[Michael Hoffman, Stifel]

Okay. So the next question then is a point of leverage on that. So the debt markets practically giving money away. We've got companies that have raised money at 2.5% on 10 year money. I mean that's almost free. Can't are you, are you in a position to try and take advantage of that given what you've done in the last year, year and a half on the mix of your fixed versus variable in your fixed swap things of that nature?

[Mike Battles]

The short answer, Michael, is yes. When we put this new leverage in place, we made sure that it was covenant light so that if we had a transactional event that Alan talked about earlier to do something really large, we would have the leverage capacity to do just that. And so when we financed all our debt, we've done, as you know, the last three years, we've done large refinancings to lower our interest rate, like quite a bit. And so we're really proud of that and we have a good 75% fixed, 25% variable rate. And so we still experienced some of the god news today. And so I'm really hopeful that if there's an opportunity out there for the market that that makes sense both strategically and financially. You know, we'll be there with the dry powder, if you will, to go to go execute on that.

[Michael Hoffman, Stifel]

All right, well, so that kind of a lay up into the next question. So there's a very big chunk of assets just got sold. I'm curious what was appealing about that for Clean Harbor? Because 600 million in revenues in hazardous waste don't come available very often. So I going assume you love. So what are you looking for if that wasn't it?

[Alan McKim, Chairman, President and Chief Executive Officer]

We're very familiar with those assets. We've looked at them over the last 10 years as they've changed hands from -- a public, the company to private equity ownership through to bankruptcy's and subsequently acquired by, one of the other bigger players in the industry. And we certainly know those assets really well. And we just you know, we're not able to put together a deal that we felt was the right deal for our company. And, there are other opportunities out there that, that might be better from a value and strategy strategic standpoint. Michael, but clearly we're looking at all opportunities that we can.

[Michael Hoffman, Stifel]

Okay. And then, Alan, you and your comments statement about chemical activity was good. Can you frame that in a sense of where you think that that dose from here, because we have had a fair amount, I mean, a couple hundred million dollars has been spent in developing new capacity in the Gulf Coast. So, how do think about where that trend line is in chemical and then in particular in the current environment around the Corona virus and that may or may not portend?

[Alan McKim, Chairman, President and Chief Executive Officer]

I think the real difficult to handle streams and what we would call out direct burn volumes have never been higher. And in many cases we're constrained and how much we can handle due to our capacity from a permit standpoint, air pollution, control standpoint. And so, we are not able to meet some requirements that customers have and they're not finding outlets as well for that and other competitors, so to speak. There are additional plants coming online. We see with the forecast for natural gas being where it is that, it's a very favorable environment to produce chemicals. And we don't know what this disruption in supply chain that we're seeing whether more will be brought back to the States or not. But we are looking at ways that we can expand our incineration capacity because we think that it's not just a strong economy that's driving it. There's some real increases in overall volumes being generated.

[Michael Hoffman, Stifel]

Okay. So, let's phrase the question about, what's your reaction is to the OA buying Gum Springs and what you think may or may not come out of that transaction.

[Alan McKim, Chairman, President and Chief Executive Officer]

The only thing I would say is, we've competed with Gum Springs for years and years with the capabilities and the permits that they have. And so from us, it's an ownership change, but I think as a kiln like that, which is very much similar to with cement kiln and we've competed with other cement kilns and they are a part of the mix and handling hazardous waste out there. We don't see a change. They do compete on some low price lean water streams. But, I think that's probably the only thing I would comment on Michael right now. Is it something that we've competed with for years.

[Jim Buckley, Senior Vice President, Investor Relations]

And Michael as you may know, that they're required to continue to take the spent hot liners. And so, that is there they're committed to doing that in this transaction. And those, those we competed a little bit on, but they're going to be tied up with those for quite of period time.

[Mike Battles]

Yes. It uses a lot of capacity. It seems like it was almost more of a landfill play that an incinerator play around PFAS.

[Alan McKim, Chairman, President and Chief Executive Officer]

I would anticipate that. Yes.

[Michael Hoffman, Stifel]

And so to that end, are you potentially looking at the -- sort of what I'd call more of the equipment or fixed asset side approaches around either granulated active carbon or reverse osmosis or even ion exchange and sort of tackling PFAS from that perspective as well.

[Alan McKim, Chairman, President and Chief Executive Officer]

Yes. We're not land filling PFAS and we're really much more into the treatment side at this point. And so our focus is not, going after the large PFAS opportunities. Right now. There are, you know, some very large projects out in the Midwest and then other markets that we've seen. But, we are seeing some real demand on our remediation equipment our water treatment equipment. And so to your point, part of that whole expansion of products and services that we're going to be making is really to help meet the needs of the industry for the treatment side of the business.

[Michael Hoffman, Stifel]

All right. And last one for me. Do you have any visibility on when the DOE market analysis of re-refining used oil will be out there late? Was supposed to be out in December?

[Jim Buckley, Senior Vice President, Investor Relations]

They are late and we've been pushing Michael, but the answer to your -- specific answer to your question is no, we do not have an estimate today.

[Alan McKim, Chairman, President and Chief Executive Officer]

Yes. Michael, we know the study is complete, but, it's with some regulatory body, so it has nothing's been released yet as you know.

[Michael Hoffman, Stifel]

Okay. I saw one of your teams, by the way at a conference I was yesterday and they had their PFAS display up and they were surrounded. Lots of people were talking to them.

[Alan McKim, Chairman, President and Chief Executive Officer]

Yes. There's a lot of uncertainty certainly with those -- forever chemicals that you're hearing about out there.

[Jim Buckley, Senior Vice President, Investor Relations]

We would definitely get a lot of inbound interest, that's for sure, Michael.

[Operator]

Thank you. Our next question comes from the line of Hamzah Mazari with Jefferies. Please proceed with your question.

[Unidentified Analyst]

Hi, this is [indiscernible] filling in for Hamzah. Could you comment on any changes in the competitive landscape, your scene and hazardous waste with Veolia recently getting larger and also with Harsco among others? Thanks.

[Alan McKim, Chairman, President and Chief Executive Officer]

Well, certainly I think the Harsco transaction that was announced [indiscernible]. I think they're probably going through their process there. And we do business together with those companies. So the company does about a $100 million of business with our competitors, very much like the chemical industry doing business with each other. And I think particularly with Harsco, we hope to be a preferred supplier with them if they choose us for waste disposal needs as we were with other players. And so because they don't really have disposal assets like we have. I think, we'll hope to develop a good relationship there and we have continuously used their facilities, the clean earth facilities for example as well.

In the case of the Veolia, I think it's really -- we haven't seen any real change at all. From what they're doing, they divested their energy business here in North America. And we've been quite surprised, quite frankly, because they've really been selling off businesses like their solid waste business or energy waste energy business. So that was somewhat of a surprise for us.

[Unidentified Analyst]

Great. Thank you. I just have one more question. I'll turn it over. I've noticed that you've taken a lot of costs out of the business over the past few years. Can you comment on how much runway is left on the cost takeout, either on the gross margin line or SG&A and the big buckets?

[Alan McKim, Chairman, President and Chief Executive Officer]

I think that we continue to deploy technology is a way of taking costs out of our business and automation, whether it's robotic process automation or AI or other things that that clearly can make us more efficient. We're also expanding our inside sales our whole a customer call center, we just relocated our Richardson headquarters to Noelle. We shifted roughly over 300 people. And we now have a small Richardson office with about 50 people or so. And through that consolidation which was essentially former Safety-Kleen headquarters that we acquired in 2012. There was some real synergies in doing that. And as we have done that consolidation, we see a continuous opportunities to take out more costs than automation will play a key role in that as well.

[Operator]

Thank you. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question.

[Jeff Silber, BMO Capital Markets]

I wanted to shift over to your direct lube program. You highlighted the strong growth in the quarter, but I think in the press release you said, it was below your internal targets. Is there something going on internally? Is it the market acceptance of this? Any color would be great. Thanks.

[Alan McKim, Chairman, President and Chief Executive Officer]

Yes. I think as we meet with the team and understand the successes that we've had and some of the disappointments we've had in the last 2.5, 3 years, we're seeing certainly many companies that are infested and [indiscernible] different products that we have. And we continue to have a, a real strong pipeline.

On the service delivery side, I think on the supply side, the supply chain side, I think we really have put a lot more focus on that because I think, the stickiness, it hasn't been where we want it to be. Our customer, we're only getting about 60%, where repetitive purchases, where historically in the safety claim business, it's very much a subscription business and we're getting 80% or 90% subscription.

So I think that's been something that from a supply chain standpoint we're addressing. And I hope as we continue to grow, we'll hold onto more of those customers that we're bringing in and do a better job of servicing them. So I would say that would be -- if there was a check mark there about something that we haven't done as well as we should have been in that space.

[Jeff Silber, BMO Capital Markets]

Okay. That's helpful. And my follow-up I guess will be like more of a numbers question. You highlighted the large project impact on a pricing perspective and I guess obviously it impacted revenue. Can you just call that out just to help us in modeling what the impact was in the quarter? Thanks.

[Mike Battles]

Jeff, I don't have that handy. I think that there were a couple of smaller projects that kind of added together along with a couple of large ones. So it's really hard for me to put a real, real number on it. I would say that growth and pricing for the year was consistent throughout the year and it was just being diluted a bit by the level of projects.

[Alan McKim, Chairman, President and Chief Executive Officer]

And I think we saw that in January. We had a very strong January and so the trends both on top-line and margin were well above our budget going into January now. We got an extra day this quarter. And so that'll help us a little bit. But I think just the weather has been good for us. Our volumes are really strong and I think that large projects, obviously we had to get that in the door, but the backlog is certainly there as well.

[Operator]

Thank you. [Operator Instructions] Our next question comes from the line of Jim Ricchiuti with Needham & Company. Please proceed with your question.

[Jim Ricchiuti, Needham & Company]

Hi. Thank you. Good morning. Just question on, I'm interested in some of the commentary event, the e-commerce initiatives you have underway should we think about these as gradual. But what I'm wondering is if, as you roll these through and expand this, if there's the potential for this also to help leverage some of your costs going forward.

[Alan McKim, Chairman, President and Chief Executive Officer]

Absolutely. We've expanded to 23 distribution centers and those were assets that we had already owned. And so we expanded those distribution centers to move more of our, what we call our ally product sales, as well as all of our lube packaged and drum product sales. But what we really found is that to be competitive, we need to be able to deliver next day in some cases to meet customer's expectations. And so as we roll out this whole e-commerce initiative, it's all going to be designed around not only trying to leverage the existing trucks that are going out there and providing those routes, but also to make sure that we're not missing that service where that customer calls up and needs that service next day. And we have historically, at least for delivering products have not been sort of a next day delivery company. And now we're going to move to that model.

And I think from a cost standpoint, it'd be relatively minor just putting in the supply change system to basically handle that. And so that'll be launched in the second quarter. And we think that'll help both on the direct side. Safety-Kleen has had very good success selling $60 million, $70 million a year of a whole variety of branded products around safety and absorbance and drums and all kinds of things that the automotive industry needs. Clean Harbors customers will benefit a lot from those same kind of purchases and we can leverage our transportation to get those delivered to them at a real low cost. So we're leveraging that for sure.

[Jim Ricchiuti, Needham & Company]

Got it. And it sounds like in general, the business looks strong pretty much across the board, but you did I think comment a little bit about some struggles in the industrial services area. And it sounds like you're not assuming a whole lot of growth there. I'm just wondering what you're seeing there, if you could be a little bit more specific and if there's -- if you feel that that has the potential to solve and further or we kind of bottoming out there.

[Mike Battles]

Hey Jim, this is Mike. I'll take and Alan, feel free to jump in. And we looked at our turnaround schedule for 2020, both in the U.S. and Canada and we feel that it's flat to up. And so we're hopeful that the level of turnarounds that are happening in both the U.S. and Canada as we look at the schedule of planned turnarounds and the size of the turnarounds, we're hopeful that we can hold the line. We have put the new leadership in place in industrial services and we're really hopeful that a better focus of that business is warranted. As you can see, we'll issue our financial statements here in a few minutes, industrial services as we break out the lines of businesses down a bit, kind of year-over-year. And so that's something that we just need to continue to focus on it.

We did it for the right reasons. We're walking away from unprofitable clients, we're trying to raise price and as such, the revenue is down a bit. I'm hoping to put the margins are up and that's hopefully continues with better revenue.

[Alan McKim, Chairman, President and Chief Executive Officer]

I would just say that with the Veolia acquisition, as we get our arms around some of the contracts that we inherited, the margins were not anywhere near where we believe from a risk and investment standpoint that we have to make to do a good job on those contracts with. So we've been going back in some cases losing some of those contracts because, we realize that they're not as profitable as we need them to be. And so there's been a little bit of shifting going on as a result of the acquisition we made there.

[Operator]

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. McKim for any final comments.

[Alan McKim, Chairman, President and Chief Executive Officer]

Excellent. So thanks for joining us today. We're presenting at the Raymond James conference next week and participating in several other events later in March. And we look forward to speaking with many of you at these and other investor events. Have a great day.

[Operator]

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