Greetings and Welcome to Clean Harbors Fourth Quarter 2018 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] Please note this conference is being recorded. I'd now like to turn the conference over to Michael McDonald, General Counsel for Clean Harbors. Thank you, Mr. McDonald. You may now begin.

Thank you, Robin. Good morning, everyone. With me on today's call are Chairman, President and Chief Executive Officer, Alan S. McKim; EVP and Chief Financial Officer, Mike Battles; 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 27, 2019. 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?

Thanks, Michael. Good morning, everyone, and thank you all for joining us. Starting on slide three, we concluded 2018 with a strong performance that enabled us to exceed our guidance. Both our segments delivered profitable growth in the quarter. Environmental Services achieved better than expected results from a combination of higher margin waste streams, pricing gains and a solid contribution from industrial services, which includes the Veolia acquisition. As was the case throughout 2018, adjusted EBITDA outpaced revenue growth in Q4, resulting in a 60-basis point margin improvement. Our full year results were also strong, credit for that goes to our entire team which consistently drove profitable growth and did so safely all year. I'm extremely proud to report that 2018 was the best safety year in Clean Harbors' history with our TRIR [ph] and other key metrics at record lows. Nothing is more important to our leadership team that ensuring that each employee goes home uninjured every day. Financially, our revenues grew 12% and adjusted EBITDA increased 15%. While our adjusted free cash flow for the year was a record $195.3 million. Turning to Environmental Services on Slide 4. Our top-line grew nearly a $100 million in the quarter with Veolia accounting for about $45 million of that amount. The remainder was driven by organic growth. Adjusted EBITDA in the segment was up 35% with a 210-basis point margin improvement. Incinerator utilization committed 86% in Q4. Our average price per pound grew by 17% year-over-year, as we continue to focus on gathering more high value waste streams and optimizing our mix. With the addition of our El Dorado incinerator, we are drawing more waste streams from the ongoing expansion in the chemical sector and regularly setting new records for drum volumes coming from both Safety-Kleen and our legacy Clean…

Thank you, Alan and good morning, everyone. Turning to slide 10 and our income statement, we closed out a strong 2018 with excellent profitable growth in Q4. We increased revenue by more than $110 million from the prior year. For the year, we grew more than $355 million or 12% with the majority coming from organic growth. 120 basis point improvement in gross margin in Q4, Veolia mix of business in the quarter, the impact of our pricing initiatives in a favorable comp with the year ago when some of our customers and locations were still being affected by the remnants of the hurricane season. On a full year basis, we saw a slight increase in gross margin, that number would have been much higher except for the addition of Veolia was generates gross margins which generates gross margins, lower than our company average Q4, SG&A expenses were up on both an absolute dollar basis and on a percentage basis, primarily reflecting the increase in of incentive compensation given the outstanding results that the team delivered on a full year basis, SG&A expenses as a percentage of revenue improved by 20 basis points. This result was driven by higher revenue improved leverage from our new regional structure and the ongoing integration of Veolia into our existing SG&A structure. For 2019, using the midpoint of our guidance range we would expect our SG&A to be slightly down in absolute dollars. Depreciation and amortization for the full year was up a little over $10 million due to the addition of the Veolia assets. For 2019, we expect depreciation and amortization to decrease to a range of $285 million to $295 million as some existing assets become fully depreciated. Income from operations for the quarter increased 49% to $41.5 million reflecting higher revenue…

Thank you. At this time, we'll be conducting a question-and-answer session [Operator Instructions] The first question today comes from the line of Luke Junk [ph] with Baird. Please proceed with your questions.

Good morning, everyone.

Good morning.

First question I had, just in terms of the first quarter EBITDA, up 10% just wondering if there is any seasonal impacts, we should be aware in the quarter. I would say no to those quarter seasonally, but anything we should be aware of in terms of shutdowns or similar.

So, we did struggle a bit in January in our re-refinery in Chicago that was shut down for a bit because of the polar vortex that kind of affected that part of the country, but outside of that Luke, there is not a lot, that's not a big number per se.

Okay, that's helpful. And then in terms of Safety-Kleen like you recently made some references to your spread management system at Safety-Kleen specifically, how much they've improved over the last few years. Can you speak to some of those changes more specifically, and maybe give us some updated guardrails as well in that area?

Yes, sure. So, the system that we're talking about was put in place a year or two ago and I think it continues to do very well and you kind of saw in the results here in Q4. I mean although, oil prices kind of collapsed in November and December that SK team continued to drive kind of profitable growth and still for the 10th consecutive quarter had a year-over-year growth in their EBITDA. So, I'm really pleased with the team and how they did down the stretch of managing their input costs as well as managing the output costs. So, that system continues to do well and I'm hopeful that regardless of how oil prices go in 2019 will be able to manage that spread and drive profitable growth.

And then, I guess sneak one more in. Alan just the outlook for incinerator pricing in 2019 obviously steady economic backdrop, good utilization, high barriers to entry in that business of course, it seems like a good backdrop to take price.

We had a number of pricing initiatives across the business last year and we would expect the benefit of those increases to flow through here in 2019. So, you will see an improvement in pricing on incineration this year for that reason for sure. I think more importantly will be the mix, the team really has been able to line out that new plant and we've been able to really increase our feed grades and the type of waste, the high value of feeds into the plant, and that's really come online at a really opportune time for us because we've got a number of key customers that have been expanding and generating those kind of high difficult - high cost difficult streams to treat. So, the team has really done a nice job both getting that plant up online.

Okay, perfect. I will leave it there. Thank you so much.

Thanks Luke.

The next question is from the line of Hamzah Mazari with Macquarie. Please proceed with your questions.

Hey, good morning. My question is on pricing as well. How much of the pricing ramp Alan is just sort of a catch-up because you sort of did a price earlier, I was just thinking about long-term pricing in your business is the pricing ramp in 2019 much higher and then we go to sort of a CPI-based pricing. Just any thoughts on sort of pricing? I know you've been strategic around that and I know we've had capacity ramp and you had to fill volume, any thoughts on pricing longer-term?

Well, we certainly have been doing a little bit of catch-up, as you know, because there were a reluctancy on us raising pricing as we were bringing on new capacity, but at the same time more waste is entering the market, we're seeing more captives looking to outsource more material direct to our facilities and with some of the consolidation that took place within the chemical industry, there are a number of facilities right now that are beginning to outsource waste that otherwise may have internalized those materials. So, all-in-all, I think we are pleased with our utilization rates. We have been doing a little catch-up, as you mentioned. We have increased pricing and quite frankly, as we've approached a lot of our large key customers, I think many of them appreciate the fact that we've made a substantial investment into these plants to increase more capacity and also to meet the new regulation. So, all-in-all, I think the pricing are justified in being received pretty well. Q - Hamzah Mazari That's great. And I know you touched on the synergies between Safety-Kleen and Environment al and obviously it's been a number of years since we did that deal, but any thoughts as you look at M&A longer-term. I know we've got involved in energy after the BP oil spill and sort of - sort of two segments, but there is a number of different verticals in those two segments. As we think about M&A longer term as leverage comes off, is the portfolio going to remain for the similar or are you looking at other avenues that sort of you are not invite now. Just sort of thoughts on longer term M&A.

I think there are lot of opportunities in the two segments that we're in today. We see a lot of deal flow through, our M&A group here and we continue to look opportunities, but we're trying to be optimistic as well. We are somewhat competing with a number of PE firms out there that in some cases pay a much higher multiple than they're willing to pay. So, we've only did a couple of deals last year, I think they worked out extremely well for us. We continue to see opportunities so to grow just in the two segments, quite frankly Hamzah, that we're in right now.

Good, got it. Last question, I'll turn it over, just at the IMO 2020 could you remind us, is that all hype or do you think that that really generates EBITDA in your business? Thank you.

Certainly, we're watching that very closely and we think there are going to be some impacts on both outlets for oils that are being collected today, that is not being refined, so we think there could be impacts to the outlets for them. We also think there's going to be changes to the pricing on marine diesel oil and fuel oil and subsequently potential positive implications on base oil pricing. So, we think on both the collection side, as well as on the sales side, IMO 2020 could have an impact on us, but I think only time will tell that kind of see just how it all shakes out, Hamzah.

Great, thanks so much.

The next question is coming from the line of Michael Hoffman with Stifel. Please proceed with your question.

Hi, thanks Mike, Jim. Close the lube on IMO 2020, it's not in your guidance, but the more important point.

That's true Michael.

Yes,

Okay. So, it's all upside whatever happens, whether it has a benefit or not, and you don't have to spend any capital to benefit from it, you basically are in the right place at the right time.

Yes, as I mentioned in my prepared remarks, we are going to spend a couple of million bucks, probably incremental capital in our re-refineries, we run them a little more efficiently but nothing to your point.

Yes, but you don't have to spend money for IMO 2020, that's just a business decision about.

It's fair enough.

Right, okay. In 2018 you enjoyed a recovery in refining turnarounds, you as a service provider, and at the time we chatted about having been a prolonged lengthening of the cycle that it looked like we were back to some normal level of maintenance cycling again. How do you frame 2019 in the context? You had a good 2018 in refining, is 2019 setting up to be - it looks like we're doing maintenance again?

I think, Western Canada had a really good year on turnaround, both are in the specialty side as well as our base industrial cleaning business. So, they will have a much lower year this year because of the schedule. The U.S. should be stronger this year, although I think probably not significantly more than what we saw last year. So, I think on a net basis we're probably flat, Michael for right now.

But would you say that we're back into a cycle again, where it looks like - you couldn't predict it for the prior five years.

Yes, I definitely think it's much more of a cycle and we are looking at the book out there of the turnarounds and the schedules and we're hiring, we're ramping up obviously staffing to deal with the demand that we have. So, I would say, yes, it's probably more consistent. And I think the pricing of oil being in this high 50 range certainly helps that we're not seeing a lot of customers, all of a sudden shut off maintenance or CapEx like they were doing in the past years.

Yes, I would say Michael that cycle to your point, yes - I think that we are but I know this is a big catch up per se. I think we're just back on, back on a normal cycle. And I think 2019, as Alan said, 2018 in Western Canada was awesome and I don't think that repeats itself but, in the U.S., grows a bit and I think net, net we're probably flat.

Yes, and that's what I was trying to get to as we've now found a pattern again, whether we didn't seem to have a pattern for a while as they change the cycle volumes.

That is fair.

Yes.

Okay, and then you used to talk about in the incineration world of $0.50 a pound sort of your middle of the road pricing and then you add El Dorado and it clearly would dampen it as you loaded and then we're off the TSDF [ph], how would you frame where you are in the aggregate to that $0.50 a pound?

Yes, it's a good question. I guess, Jim, you have a comment?

Yes, Michael we're kind of back to where we work because throwing the 70,000 tons of capacity and then having to fill that up. We obviously diluted the price and with the large increase we're reporting in the past several quarters, we put the average price back up. I'm not sure that $0.50 a pound unless you're excluding our Canadian incinerator which is liquids only that dilutes that price, but in the U.S. network that's approximately where we are.

Right. And so, to the point of pricing anything from the here and now is more likely real price as opposed to ASP and mix because you now get the benefit from better volumes.

To Hamzah's point about asking about year-over-year. Yes, we had a bit of a favorable comp last year, obviously with running so much low-price material through. So, if you say we're back to kind of level set here with 70,000 more tons then everything from here forward is moving up.

Incremental.

Yes.

Right, all right, which is the point I was trying to make. And then lastly, we can - as market observers see posted base oil prices and so we understand what's happening on that and to your spread and we have no idea what's happening on the front end, but I have to believe you didn't sit idly when oil was coming down. So, could you share at least what you did in the fourth quarter on an incremental basis for charge for oil? So, the market understands how quickly you're able to respond.

Yes. So, Michael, this is Mike. So, it was about zero, about flat, maybe down - rounded down to a penny. But as you look into 2019, it's been up a bit here in January. So yes, we did drop. We did raise our pricing down, pushed out price, but when the price went down on December 1st, but at the end of the day we've kind of recover that.

So probably in a charge for oil?

We are definitely charge for oil right now, absolutely.

So, 2019 is a charge and can you share any assumption about - I guess really what you're saying is, you're going to manage the spread regardless and therefore that's why we can look at a 1% to 2% EBITDA growth despite base oil down?

That's right. That's exactly right. Q - Michael Hoffman Okay.

Please go ahead.

Sorry, last tie and just a closed-lube on it. I'm assuming you haven't built any seasonality; you've taken the base oil where it is at the moment and that's likely to manage the spread. And if we get a normal seasonal slight demand push, then that's upside as well?

Yes, sir.

Great, thanks. Nice quarter.

Thank you.

Thanks, Michael.

The next question is coming from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question.

Thanks so much. In your commentary around the Safety-Kleen, you talked about your goals to increasing the blending products component in 2019. Can you give a little bit more color how you are going to get there and what you think the impact might be on segment margins?

Sure. We established about 15 bulk distribution facilities within our existing network and we have been in our supply chain organization been expanding the quantities and the types of products really across the network, not only in those bulk facilities, but through our distributors as well as our package materials across our distribution centers. So, as 2018 continue to rollout and we ran our sales initiatives, we realized that there was a lot more opportunity for us to continue to grow that. We've kind of - I would say made a case that customers really are willing to buy our oil. They like the product that we have, they liked it - the delivery methods that we're making here to pick up their waste and deliver oil at the same time. So, I think we're just going to continue now to execute on that plan. We'd like to have gone faster than the way we ended up for the year. We're a little bit short from where our internal targets were, but all-in-all, I think we go at about 60% to 70%, so that was good news for us.

And I'm sorry, the potential impact on margins, if you get there.

Well, I think - just at a very high level, we've always thought there is probably a dollar, a gallon kind of margin uplift, as we sell more blended oil than if we are in the kind of commodity base oil business. So that's always been sort of our thinking at a very high level.

Okay, that's fair. And Mike, forgive me, in your comments did you say that you sold the lodging business in Canada? Are you completely out of that business now?

No. Jeff, we sold the lodging manufacturing operation. We had a small manufacturing operation south of Edmonton and we sold that that building in the land to a third party for about US$7.5 million.

Okay, great, thank you so much for clarifying that. I appreciate it. Thank you.

The next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your questions.

Good morning, gentlemen. Thanks for taking the questions. Yes, so again to come back to price. I mean, pretty notable mix improvement, obviously in ES in 2018. So, it looks like there's a little over $20 million of EBITDA growth kind of the midpoint of your guidance for 2019. And really how much of that is price? I mean is this basically all price driven, can you talk about your assumptions for price versus volume?

So, Noah I'll take it. And so, when you think about the growth in 2018, certainly prices as Alan and others have said, it was a good driver of that. I would say the predominance of the growth in revenues was mix, as Alan tried to say, we're kind of higher margin waste streams - higher waste streams that are difficult to dispose of really kind of came into the network and that's due to that our growth in the chemical and the manufacturing space. So that really - that really drove the incremental revenue and the incremental margin improvement. As you look to 2019, I think that just keeps going. I think some of the contracts we have kind of continue and these types of waste streams continue into 2019. So, when I think of kind of the midpoint, we ended at $491 million and the midpoint of our guidance is $520 million, I think a lot of that is really a mix issue as much of a price issue. Price is up, no doubt about it, catching up from 2017 and really our costs are going up and we've been able to have constructive conversations with our customers about increasing price. But if you look at the overall growth, it really is a mixed story and that continues to 2019, which I think is actually a much - a more positive story, frankly, I think that really talks about kind of what's happening in the United States from a chemical renaissance, which we've talked about quite a bit, whether our current customers are doing more or new customers are coming online, it's really been - it really was a great finish to a great year and I think the story is a mixed story as much as the price story.

That's very helpful. Thanks, Mike. Kind of switching gears, how should we think about working capital impacts for the free cash flow guide for '19? It looks like - you got a nice benefit to 4Q around the payable side, you talked about maybe still an opportunity to decrease DSOs, what should we expect for working capital impact?

Yes, I would say working capital is neutral, maybe it grows a bit as the business grows, but we're not anticipating us - in my guidance I'm not anticipating DSO dropping dramatically. We will continue to work it, we have plans to do that, but I don't think that it's going to be - I really don't think it's going to be a - we are not planning on a big DSO decrease.

Yes, I mean, I would just point out that from our perspective, kind of underlying free cash flow growth in the guide is higher, you did a really nice job to your credit from 4Q on the working capital side. Let me just ask one slightly different question to finish off here, I think we've seen data from EPA that something like 1.3% of all public water systems have detections of PFAS that are at or above the nation's health advisory level and recently seeing EPA saying they're going to propose the regulatory determination by the end of 2019, Alan, I think last quarter you estimated $25 million to $30 million revenue in 2018 from PFAS cleanup, so really kind of a three-part question. Where did you end up in 2018 revenues? What have you projected for 2019? And how large, do you think the TAM becomes if the EPA ultimately set in regard to contamination standard?

Yes, it probably come in closer to $15 million plus last year, but we certainly been paying attention to that regulatory change, that's going to be coming about and we see a real opportunity to be honest with you. We've invested capital and part of our increasing capital spending is to build more onsite treatment units to support our customers' demand in that area. We've been pretty much maxed out with the facilities that we have today, so that's going to be a real positive, I think for us,

Hi, Noah, can I add one more point to Alan's comments. So, I think if you look at 2019 guidance, we haven't assumed a lot of incremental from that number and just so you and I are on the same page, it's on the same page, if PFAS becomes a thing here in 2019, there's probably upside to the model.

Okay, perfect. Thanks so much.

The next question comes from the line of Larry Solow with CJS Securities. Please proceed with your questions.

Yes, hey, good morning. It's Peter Lucas [ph] for Larry. I apologize if I missed it, in the prior question, just on direct lube you've done a nice job there and expanding it over 25,000 customers. Do you see the continued growth slow grind and more of a hockey stick growth that will need a couple of national accounts to get it going?

Yes, Pete, this is Mike. I'll take it now and feel free to jump in. I'd say that 2018 on the direct lube didn't hit our own internal guidance, but still a great growth for the - 70% growth year-over-year on our direct lube business, and it continues to grow in 2019. The point we want to mention in the comments was it's more of a blended lube story and so, we're trying to grow both our distributor business and our direct lube business going from kind of $39 million, $40 million in 2018 to $50 million in 2019. So, whether we get it through the direct lube channels that we've talked about previously or through our distributor network and we want to grow that blended lube. That's where the margins are, and that's where the stickiness is, that's where we really want to kind of drive this business going forward.

Yes, it just reduces the volatility and the exposure on the base lube.

Yes.

Yes, perfect. And you guys did a real nice job covering it and talking about the EBITDA guidance going forward there so a lot positive commentary for 2019 and it sounds like mix is kind of the main driver between the high end and low-end of guidance is that the right way to think about it, or is there any other key driving factors that we should think about there.

Yes, I say mix is a big part of it I think that one would be - it depends on the mix and the projects that we have. We have the pipeline of projects, it looks very strong, one of our guys, said - one of the strongest we've seen in a long time and so we're hopeful that comes through, if that comes through, we're going to be on the high end if those get delayed for reasons beyond our control, we'll be on the low end.

Very helpful. Thanks, and congratulations on the quarter.

Thanks, Pete.

Our next question is coming from the line of William Grippin with UBS. Please proceed with your question.

Hi. Good morning, everyone. Just quickly, sorry if I missed it, but could you just a detailed the Veolia contribution in 4Q for both revenue and EBITDA and then it sounds like you're making some good progress ramping that business improving margins, just kind of size up for us maybe what you're expecting for 2019 for that acquisition.

Yes, so William if you give me 30 seconds, I'll pull the Q4 revenues, the EBITDA was about $4 million and $4.5 million in Q4. And so, for the year, that turns out to be about $14 million, $14.5 million of overall EBITDA for Veolia. We think that goes up into the high teens in the $20 million in 2019, as that business continues to do well for us, but I don't have the revenue numbers at my fingertips.

No problem. Thank you very much. That's all I had.

Thank you. [Operator Instructions] Thank you. At this time, I will turn the floor back to Mr. McKim for closing remarks.

Okay. Thanks, Rob. Thanks for joining us today. Everybody and we're going to be presenting at next week's Raymond James Conference. So, we look forward to seeing some of you there as well as other Investor events. So, we appreciate you joining our call today and have a great day.

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