Clean Harbors Inc Q4 FY2021 Earnings Call

Greetings, and welcome to the Clean Harbors' Fourth Quarter 2021 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors.

Thank you, Christina, 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; President and Chief Operating Officer, Eric Gerstenberg; and SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward-looking 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 23, 2022. Information on potential factors and risks that could affect the 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. 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 these 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. With that, I'd like to turn the call over to our CEO, Alan McKim. Alan?

Thanks, Michael. Good morning, everyone. Thank you for joining us. We concluded 2021 with another great quarter. The Environmental Services and Safety-Kleen sustaining solutions segments each contributed meaningfully to our strong Q4 performance. We surpassed $1 billion in quarterly revenue for the first time in our history and delivered adjusted EBITDA of $174.3 million. Strong execution in Q4, aided by a favorable market environment resulted in adjusted EBITDA and adjusted free cash flow ahead of our guidance. Overall, 2021 was an exceptional year for Clean Harbors, and I'm proud of the way our team delivered for customers, and executed on our strategic objectives. Behind our 2021 financial accomplishments were a number of business highlights, including investments such as our $1.2 billion acquisition of HydroChemPSC as well as the planned expansion of our incineration facility in Nebraska, many customer wins, including major awards in the retail space, enhancements in our ESG reporting, which have led to ratings improvements and strategic structural enhancements, most notably the creation of our Sustainability segment. In addition, we overcame the deep freeze in the South that temporarily shut down six of our incinerators in early 2021. We've also been successfully navigating the various phases of the pandemic and combating inflationary pressures, certainly not seen since I started the company. While 2021 was not without its challenges, we met those obstacles head on and delivered an outstanding performance, including record profitability and free cash flow. Turning to our segments, starting on Slide 4. Environmental Services revenue grew 36% in Q4, reflecting the addition of HPC, coupled with strong customer demand and higher pricing. The integration of HPC has gone extremely well, and we’re reaping the benefits of their talented team, industry-leading automation technology and terrific assets. As expected, the cultural fit has been seamless and we continue to see immense potential to capture synergies and generate cross-selling opportunities. Segment revenue, excluding HPC, grew by more than 10%, reflecting higher disposal volumes and stepped up activity at our service businesses, which have mostly returned to pre-pandemic levels. For example, revenue in our legacy Industrial Services business grew 26% as we benefited from a robust fall turnaround season. In Field Services, our legacy base business, excluding HPC and decontamination work, was up 27%, sparked by cross-selling and a good mix of smaller response jobs. Safety-Kleen Environmental continued its steady rebound posting a 6% increase from Q4 a year ago. Looking at profitability in the Environmental Services segment. Adjusted EBITDA was 8% higher in the quarter due to the growth in revenue and the addition of HPC. From a margin perspective we had a tough comparison with Q4 of 2020, which saw $4.7 million from government-assisted programs versus only $240,000 in Q4 of 2021. We also had higher margin COVID decon work a year ago. In addition, like all companies, we experienced inflationary pressures and increased costs in the second half of 2021 in parts of our business. We are continuing to roll out increased pricing for all our project and contract work. Customers have an understanding of the current environment we're all facing, and as a result, they're accepting higher-than-historical price increases. We also are walking away from business when customers are not receptive to our pricing initiatives. We expect our aggregate pricing actions to offset inflation in 2022. And at the same time, we are implementing other initiatives to reduce our costs, enhance productivity and increase efficiencies to improve our margins overall. Looking at our disposal network. Incineration utilization was strong at 92% in the fourth quarter, up from 84%. Utilization increased because we had fewer turnaround days than a year earlier, allowing us to process more material at our plants and really cut into our waste backlog. We also won projects that included some higher-volume waste streams. Our average price per pound was flat from a year ago based on the mix in the quarter. A pickup in environmental remediation projects in the quarter enabled us to grow our landfill tonnage by 15% from Q4 a year earlier. In the fourth quarter of 2021, revenue from high COVID-19 decontamination work totaled approximately $11 million, greater than anticipated due to the emergence of the Omicron variant, but down substantially from $31 million in Q4 a year ago. For the full year, we generated $59 million of COVID decon revenue and recently surpassed over 21,000 responses since the program started in early 2020. Parts washer services grew to $228,000 as most Safety-Kleen branch core offerings continue to trend positively. Moving to Slide 5. Revenue in our SKSS segment was up more than 60% through a combination of higher base oil and blended pricing, robust demand and good production at our plants. Adjusted EBITDA increased more than $40 million as we capitalized on market conditions to maximize our re-refining spread. Adjusted EBITDA margins topped 29% on product pricing gains and strong management of our collection costs at the front end of our re-refining spread. We believe the strategic and structural enhancements that we made to our waste oil collection and supply organization have strengthened this business. For example, waste oil collections were up sharply again, growing 14% to 56 million gallons. Based on market conditions, our percentages of blended products and direct volumes came in as expected in the quarter, particularly given the additive shortages the market faced in Q4. We expect those volumes to begin to grow again in 2022. Turning to Slide 6. We continue on all phases of our capital allocation strategy. In Q4, we moved ahead with the Kimball incinerator expansion project, which remains on schedule. We also continue to evaluate other ways to grow our disposal capabilities and our re-refining capacity in support of our strategy for disciplined organic growth. On the M&A front, we're continuing to look for potential acquisition candidates that will support growth in each of our two operating segments. We think there are a number of attractive bolt-on opportunities in the marketplace for us to pursue. Before turning it over to Mike, I'd like to end on three key points on Slide 7. First, our success over the past five years that you can see on this slide demonstrates what this team and our company is capable of achieving regardless of market conditions. I know we have the best team in the business. Our bench has never been stronger as we have a great mix of veteran leaders that know the space and talented new faces who bring fresh perspectives into our industry. Second, demand for our services has never been stronger. One of the advantages in investing in Clean Harbors is that we are a well-diversified company that addresses a broad array of industry verticals through a range of our service offerings. I can't remember a time in recent memory where market demand was so robust across the board with multiple tailwinds. We've spoken at length about the volumes of waste in our incineration and TSDF network, but our future demand looks even stronger. When you add the incremental volumes from retail wins, the healthy project pipeline we are seeing, including opportunities around PFAS and Superfund and the overall reassuring trend in the U.S., on the service side, everywhere we turn, there are demands for our valuable skilled workforce, given the labor shortages in the market. And that really goes across the board: Industrial Services, Field Services, Safety-Kleen Environmental and Tech Services, all businesses. And my third and final point is that 2022 will certainly be as active a year for us. We have a long list of initiatives underway to drive success and build considerable shareholder value. These include improving our safety performance, which did have a challenging year in 2021; capitalizing on all the market demand that I just mentioned; exercising our pricing power to cover the inflation we're seeing; continuing to not only retain but recruit more of the talented workforce that we have today; completing the HPC integration, which would include achieving a $40 million run rate of synergies by the end of 2022; making significant progress on the Kimball build; and lastly leveraging our strong balance sheet to accelerate our growth momentum. So I think there’s no shortage of activity at Clean Harbors coming this year. We’ve set the stage for another great performance by the company which will benefit all our stakeholders in 2022 and beyond. So with that, let me turn it over to Mike.

Thank you, Alan, and good morning, everyone. Turning to our income statement on Slide 9. Revenue increased 41% in the fourth quarter, driven by the addition of HPC in early October, and growth in our legacy business. Top line growth, excluding HPC, was 20%. Adjusted EBITDA was 23% higher than a year ago, coming in at $174.3 million. SG&A on a percentage basis was up 20 basis points from a year ago to 14.2%, largely due to higher incentive compensation as well as severance and integration costs. For the full year, SG&A costs as a percentage of revenue were up 20 basis points to 14.1%. As we look ahead to 2022, we expect SG&A costs as a percentage of revenue to come down from 2021 levels to the mid-13% range as we leverage the HPC revenue, work to control cost and expect less severance and integration costs this year. Over the past five years, we made a concerted effort to lower our SG&A costs as a percentage of revenue through the use of technology and other workforce initiatives. If we hit our target for 2022, we will have lowered our SG&A costs as a percentage of revenue by almost 200 basis points in total over that time frame. Depreciation and amortization in Q4 increased by $82.9 million, reflecting the addition of the HPC assets. For the full year, depreciation and amortization was $298.1 million, towards the lower end of the range we provided in November. For 2022, which includes the full year impact of HPC, we anticipate depreciation and amortization in the range of $330 million to $340 million. Income from operations in Q4 increased by 33%, reflecting our revenue growth as well as efforts around pricing and managing our re-refining spread. For the full year, our income from operations climbed by 38% to nearly $347.9 million. Turning to the balance sheet on Slide 10. Cash and short-term marketable securities at quarter end were $534 million. The decline from September 30th reflects the approximately $250 million that were used as part of the funding for the HPC acquisition. You can also see the impact of that transaction in our debt balance as we ended the year with debt of more than $2.5 billion. Leverage on a net debt basis using our 2021 EBITDA was approximately 3.1x. Based on the midpoint of our 2022 EBITDA and free cash flow guidance, we expect to leverage 2.5x at this time next year. Our weighted average cost of debt going forward is 3.55%. That number reflects a new swap agreement we recently put in place to limit our exposure on some of our variable rate debt, and we continue to have no debt maturities until 2024. With approximately 70% of our debt at fixed rates, we're in a great position interest-wise, even in a rising rate environment. Turning to cash flows on Slide 11. Cash from operations in Q4 was a healthy $177.8 million. CapEx net of disposals was $89.5 million, up significantly from a year ago, as we added HPC and are moving forward with some growth investments, particularly in our plants. Our spend on the new Kimball incinerator was $4.1 million in Q4 and totaled $7.2 million for the year. We delivered Q4 adjusted free cash flow of $88.3 million and a record $326.3 million for the full year. For 2022, we're currently expecting our net CapEx to be in the range of $310 million to $330 million. The large year-over-year increase reflects four items: a full year of HPC CapEx, growth in legacy Clean Harbors business, particularly landfill expansion; inflationary costs for materials; and vehicles; and approximately $40 million to $45 million on the Kimball project this year. During Q4, we bought back approximately 56,000 shares of stock at a total cost of $6 million. We still have more than $150 million remaining under our existing buyback program. Moving to Slide 12. Based on our 2021 results and current market conditions, we expect 2022 adjusted EBITDA in the range of $755 million to $795 million, with a midpoint of $780 million. This guidance assumes approximately $115 million of contribution from the base HPC business or $101 million on an incremental basis from 2021. In addition, there are $20 million to $25 million of cost synergies we expect to realize in 2022, out of a total of $40 million we expect from the deal on an annualized run rate in 2023 and beyond. Looking at our guidance from a quarterly perspective, we expect Q1 adjusted EBITDA to be 30% to 35% higher than what we posted in 2021, largely due to the addition of HPC and higher profitability in the SKSS segment. Here’s how our full year 2022 adjusted EBITDA guidance translates to our three segments. In Environmental Services, we expect adjusted EBITDA at the midpoint of our guidance to increase in the low 20s on a percentage basis from full year 2021. Even with much lower decontamination work and no money from government-assisted programs, we expect a significant increase due to the addition of HPC, organic growth in our core lines of business, increased pricing to offset inflation and our comprehensive cost mitigation initiatives. As a point of reference, this segment received government assistance of $10.2 million in 2021. For SKSS, we anticipate full year adjusted EBITDA at the midpoint of our range to decline in the mid-teens compared with 2021, as we did successfully throughout 2021, where we exceeded guidance in every quarter and raised it three times during the year. We're baking in some conservative assumptions around the re-refining spread even though we've not seen a narrowing at this time. Also, this segment received government assistance of $1.4 million in 2021. In our corporate segment, at the midpoint of our guide, we expect negative adjusted EBITDA to be up around 4% or 5% from 2021, largely due to a full year addition of HPC corporate costs, offset by lower incentive comp year-over-year given the great year we had in 2021 as well as lower severance and integration expense. Based on our current EBITDA guidance and working capital assumptions, we now expect 2022 adjusted free cash flow in the range of $250 million to $290 million or a midpoint of $270 million. That midpoint includes our significant Kimball CapEx investment of $40 million to $45 million. While that CapEx increase reduces our reported free cash flow, we view that as an acquisition-style investment that will produce strong levels of returns over the long term. I should point out that our record adjusted free cash flow in 2021 reflected a strong positive working capital contribution as we lowered our DSO through a company-wide focus on collections. Let me conclude my prepared remarks with one final thought. When new investors ask about Clean Harbors, the point I emphasize with them is the resiliency of our organization. Just look at our five-year EBITDA and free cash flow charts that are on Slide 7. Despite the pandemic and all of the accompanying market turbulence that impacted us and our customers over the past two years, we are doing what we do best, actively managing the business. We introduced a first-to-market national decontamination offering that many large-scale customers came to rely on. We took aggressive action on costs at the outset of the pandemic and temporarily reduced our variable expenses before ramping back up as the business recovered. We reshaped the structure of our waste oil collection business and closely aligned it to our re-refining operations which had a hand in the widening of the spread in 2021. Our resiliency goes well beyond our 500 permits, high barriers to entry and comprehensive set of offerings. It's a 40-plus year track record that has become part of our identity as an organization. As Alan said, 2022 will not be without its challenges, whether that's inflation or labor availability or severe weather. Regardless of what those conditions are, we are confident in our ability to respond, maintain the profitable growth path that we're on and deliver significant value to our shareholders again this year. With that, please open up the call for questions.

Our first question comes from the line of Tyler Brown with Raymond James.

Just a couple of quick housekeeping items. One, what is the assumption that's built into the 2022 guide around decon work? And then two, given the success, it sounds like your incentive comp accrual increased in 2021. Just how much of a benefit in dollars would that be if it just normalized?

So we think decon for 2022 will be less than $10 million. That's a good thing — less and less. We saw a little bit early in the year, but it's been slowing way down. When you think of incentive comp, I'd say it's $5 million to $6 million of tailwind into 2022, collectively across the organization.

And then so again, Mike, thanks for all the guidance. I know you don't guide to revenue or margins, but there's just a lot of noise in Environmental Services margins. I mean we're layering in HPC. We're taking out decon. We're lapping these government payments. But if you stripped all of that away at a very high level, I mean, are you expecting your core Environmental Services margins to expand in 2022, again, with all the pricing and cost initiatives that you guys have talked about?

It's again tough to forecast revenue even on the ES side. But I would say that we have made real good progress on the pricing initiatives that Alan mentioned in his prepared remarks, and covering off on inflation plus cost actions should get margins to expand. The way I'm thinking about it is more of a first half, second half. I'd say first half margins will be under pressure — Q1 certainly Q2. Back half, they'll be much better. I think when you look at ES for the year, year-over-year, I think it's going to be flattish for the year.

And then Alan, on the 92% incinerator utilization, that's a great number. I assume it's basically full practical utilization. But looking ahead, given the backlog, the incremental 3 million tons, should we assume that's kind of where utilization will sit — maybe it bounces around a little bit with Q1 or downtime, but any thoughts there?

So for the full year in 2022, we expect our utilization to improve overall annually from 2021. We continue to have a strong backlog; the 3 million volumes continue to flow into our network. We have a strong project pipeline that will help with that utilization as well. So all things considered, we expect overall annual utilization to improve year-over-year.

And then just my last one quickly. I've read a few stories about bird flu kicking back up in the West. Alan, I know that was a major emergency present back in 2015. I'm just curious if you're seeing any calls on mobile incineration or anything to note there?

We have not seen anything yet that has been substantial. We're obviously tied in with the government to be able to respond to that, but we haven't seen anything substantial at this point.

Our next question comes from the line of Noah Kaye with Oppenheimer.

Obviously, a big event from an M&A perspective in the industry over the last few weeks with RSG announcing the agreement to acquire US Ecology. I guess I would welcome your thoughts on potential implications for the industry broadly. More specifically, during such an inflationary period there's a thesis that the environmental services space is going to continue to go through maturation and improving rationality in terms of competitive behavior and pricing. You talked about having such a shortage of skilled labor in the industry and other inflationary pressures. What are you seeing in terms of competitive behavior in the market right now as you look across lines of business, and how does that play into your expectations around pricing for 2022?

I think probably the biggest issue that all competitors face is staffing, pay costs, hiring drivers — everything that you read about, even shortages of people moving railcars. And so a backlog of rail is even a challenge for many of us in the business. Our observations at this point in both segments are that people are struggling and dealing with those kinds of issues and certainly not in a position where they're discounting their services to take on more than they can already handle. We're probably in the same boat here. As I mentioned, our book is extremely strong. Our backlog is stronger than ever. We have several thousand positions open. We continue to look at opportunities. We have approximately 20,000 employees. We look for an additional 10% growth this year in staffing. That is really driven by our sales and the opportunities we see in the market. I think those opportunities are across the board with our competitors as well.

Second, you mentioned in the prepared remarks looking for ways to increase disposal capacity. Mike, you might have mentioned some increased CapEx in the outlook for landfill expansion. Can you touch on that a bit more? There's a strong backlog here — comment on the drivers, the need to expand your disposal capacity and where you think you may see the most progress outside of what you've already announced with Kimball?

I'll just comment that this year is probably going to be our most significant spend in landfill expansion. Eric?

We have a big investment in a few of our landfills to expand cell capacity. Obviously, the pipeline that we see across our projects is robust. We continue to target improvement within our comparable incinerators. We annually target 5,000 to 10,000 tons growth initiatives. As Mike had mentioned, we had a nice expansion this past year in Aragonite, our incinerator in Utah, where we added a shredding system, so we continue to look at key projects throughout our network to expand our capacity.

Our next question comes from the line of Mario Cortellacci with Jefferies.

This is Mario Cortellacci filling in for Hamza. Going back to the RSG - US Ecology deal, as of today what is your market share in hazardous landfill volume and incinerator capacity? Where do you see yourself in consolidating the space? I know you talked about having an active M&A pipeline and you're looking at potential candidates. Maybe give us an update on where you stand and your expectations for consolidation in this space.

US Ecology is a company with tremendous assets and has been a competitor of ours for as long as we've been in the landfill business, particularly dating back to 2002. As Eric mentioned, we're going to set an amount of capital expanding our existing landfills; we continue to look at opportunities to expand our landfill footprint. There really haven't been many greenfield landfills built in decades. On the incineration front, as you know, we're the number one player in incineration. We built a new incinerator in El Dorado and now we're duplicating that plant in Kimball. We continue to see opportunities, particularly on the incineration front, because many of our customers' captive incinerators are looking for alternatives to either shut those down or to divest them. So we are focused on expanding our existing landfills and adding more incineration capacity across the board.

Do you have an update for market share? I think the last thing I saw you guys put out was in 2019 — like 66% share in incinerator capacity and 30% in hazardous landfill volume. Is that pretty similar now compared to 2019?

Mario, I'd say that's fairly consistent. I always say it's like two-thirds, one-third in terms of incinerator capacity versus others — so roughly similar.

Given what's going on with the oil markets, I don’t believe you forecast the spread. But maybe you can give an idea of how you're thinking about the conflict and how it’s driving oil prices? How much can you benefit from this? I know it's about managing the spread, but give us color around the impact that may benefit or negatively affect your business.

A couple of things. We're clearly seeing the effects of IMO 2020 and demand for low sulfur oil. We're seeing growth in volumes of waste oil available at a much lower cost. Customers are demanding more of our re-refined 'green' oil. The discount that had historically been in place has really been eliminated and we're now able to price our base oils at a very strong market rate because of demand for our recycled products. We continue to look at opportunities to expand our production, improve processes and drive more base oil volume through our re-refineries. We think this is a long-term trend benefiting the use of these waste oils.

Our next question comes from the line of Michael Hoffman with Stifel.

A couple of housekeeping items. On internal cost inflation, can you share what you're estimating that is in your business model?

Yes, Michael. I'd say it's mid- to high-single digits in the 2022 model.

That's an enormous range — is it 5% or 8%?

It depends on the part of the business. Some parts the inflation is more temperate and some parts are pretty aggressive. It depends if it's a labor-intensive type of business or not.

You've made the comment that you will cover the cost of inflation with price. Do you see 2021 as perhaps a seminal event where as inflation normalizes you'll retain more pricing control going forward?

Our relationship with large accounts has been such that during downturns we provided concessions and now, facing significant cost increases — crude oil, transportation, labor, and broader supply chain disruption — we're going back to those same accounts and driving price increases to keep up with inflationary costs. Customers are generally willing to accept legitimate cost increases. For us to continue to drive margins, we must execute operational excellence, cost initiatives, top-line growth and cross-selling, particularly with HPC. That's where we'll see margin flow through this year.

Mike, within the guidance, the way you framed SKSS down year-over-year equates to about $35 million of the $100 million spread advantage. Is that right?

Yes, sir.

On deferred revenue, the seasonal pattern between Q3 and Q4 looks muted and year-over-year it's healthy, another data point showing strong demand and incineration essentially sold out. Is that a correct assumption and what's not reflected in that number that's still sitting at the customer?

Deferred revenue made real progress in Q4. Eric and the team did a good job thinking creatively about how to move waste more efficiently and got after that backlog. I still think there's a lot of material at customer sites. One of the happiest things in our analysis is landfill volume is picking up. That's an area we've been discussing for two years. Those larger projects are how we're going to grow and potentially exceed guidance. The landfill project pipeline is coming to fruition, and the variants of COVID seem to be moving to the rearview mirror, so those projects should free up. Incinerators are running well and we have more opportunity there, but landfills are where I think we'll drive good growth in 2022.

On the labor side, would you characterize that the business could have grown more if you had more labor, but you're not losing business — it's a function that nobody could do it because there's a labor issue?

We use subcontractors and partners, and I believe we're meeting customer demand, but it's costing us more, which has impacted margins. We need to drive price improvement where costs have increased. We've reorganized recruiting, training and onboarding to accelerate hiring and create labor pools needed for the peaks and valleys throughout the year.

Mike, on capital spending and free cash flow in the guide — you had a pretty good asset sale number last year which won't fully repeat. You mentioned $5 million to $6 million of cash paid out in the spring for comp; Kimball incremental CapEx, landfill cell development versus a year ago — can you bridge the headwinds to free cash flow?

Kimball is about $35 million to $37 million more this year than last year. Landfills are $15 million to $20 million more. Asset sales were $22 million last year and probably closer to $10 million this year. Working capital benefited by about $20 million last year because of DSO improvements. Those items add up to a mid-80 number. If you take that and add it to the $270 million midpoint of free cash flow guidance, you get to around $350 million to $360 million of implied cash generation versus EBITDA, which is consistent with a roughly 45% conversion ratio historically.

For modeling purposes, how should we layer in Kimball in 2023 and 2024 as far as spending?

I think it's about $80 million (in 2023).

$80 million over the next couple of years.

Our next question comes from the line of David Manthey with Baird.

HydroChem: I think back in early August they were predicting $744 million in revenues and $115 million in EBITDA for the year — a 15.5% EBITDA margin. Can you comment on how that came in relative to those expectations?

For 2021, HPC came in roughly in line with expectations; the numbers you cited were close to our expectations. Included in the year's EBITDA was about $5 million to $6 million of severance and integration costs. For 2022, we talked about $115 million from the base HPC business plus $20 million to $25 million of incremental EBITDA due to synergies. Integration has gone well and the team has done a great job.

On the $40 million run rate synergies after the first year, should we assume exit velocity by the end of this year is $10 million per quarter, or is there more scaling up to get from here to there? What's the timing?

We're making real good progress. We meet every other week with the team; Alan and Eric and others are on the calls, and we're on track. We expect to get to the $40 million run rate by the end of the year.

On nonrecurring items, I think you mentioned $8.6 million in severance in Q4 and a Q3 acquisition cost of roughly $6 million. Both are included in adjusted EBITDA. First, is that right? Second, in your guidance for 2022 did you allocate for any of those expenses or assume those are zero?

Yes, we include those items in adjusted EBITDA as adjustments. We do assume some small amount of severance and integration costs in the guidance — kind of a high-single-digit number per year for those types of expenses.

Our next question comes from the line of Jerry Revich with Goldman Sachs.

Can you talk about like-for-like incinerator and landfill pricing in Q4? Mix matters a lot. What was it in the fourth quarter and what are your expectations for those product lines specifically in 2022?

I'll start and Eric can add. In Q4 pricing was actually flattish overall, as Alan said, but that was due to mix. We had more project work that has lower price points, which muted the average, but it's a good story because that mix drove higher utilization and volume. Pricing was strong; it was just muted by mix. For 2022, that mix and ability to drive prices should be part of the story and could help us overdeliver on the numbers we gave this morning.

Is it possible to quantify what like-for-like pricing would have been mix-adjusted?

I'd say the market basket and kind of incineration all-in was high single-digit improvement in pricing on a like-for-like basis.

In terms of normalized incinerator capacity utilization, where can we view effective capacity on an annualized basis based on how the plants are operating?

There's opportunity to increase capacity. It comes down to project work. Different waste streams — drums, direct burn, bulk solids and liquids — have different impacts. Bulk and liquids often are project work, and we are bullish about the ability to grow that in 2022.

To build on that, we continue to expand capacity across the network. On an annual basis, 87% to 90% is solid given the ups and downs of project business that flow into the units.

Our next question comes from the line of Larry Solow with CJS Securities.

You mentioned that in some areas you're benefiting as customers turn to you amid shortages in skilled labor. Does that mean your demand is stronger because of that shortage and you're winning business, or how should we think about that?

We see some large accounts looking to outsource more to us to provide client services. We have several hundred locations where our team shows up every day, and for growth in environmental or industrial programs we see outsourcing as a continuous trend, which is driving demand.

You're growing fast and hiring. How about attrition rates? Many companies face difficulties with attrition — can you give a rough idea for 2021? I assume you hired more than you lost, but any thoughts?

It depends on specific roles. HPC had somewhat higher turnover in direct workforce than our historical Clean Harbors levels; that's something we're addressing. We saw some higher turnover in indirect SG&A employees working remote or hybrid — the 'great resignation' had some impact on us, but not significant. We still have a strong workforce with lots of tenure and we are focused on building and retaining talent.

Regarding inflation and pricing — historically you've been able to pass through price increases in many businesses. With the recent inflation acceleration, are you getting less benefit now, or are your price increases generally covering inflation and providing some incremental margin — low to mid-single-digit benefit?

We accelerated our pricing effort and communication. A leadership team meets weekly across the company to measure and address the issue. That message has been delivered across the organization: we must focus on driving price improvements given the inflationary pressures. Customers generally accept legitimate increases and that's how we'll work to cover the higher costs.

Last on Safety-Kleen: you mentioned SKSS could be down about $35 million relative to the prior year's benefit. Pre-COVID 2019 you did roughly $130 million in EBITDA in that segment. Is some of the $60 million difference unsustainable or is the current environment driving sustainably higher results?

I don't think the 2022 guidance is unsustainable. It's a conservative number. We're seeing strong base oil demand and pricing, and early months of 2022 look encouraging. One driver will be selling more blended products direct to customers, which will improve margins. Last year we faced additive shortages and force majeures that constrained direct sales; we hope those constraints will be behind us this year and the segment can continue to improve.

Our next question comes from the line of Chris Granger with Needham & Company.

Could you discuss how the integration of HPC is proceeding relative to your expectations and what's left? What are the key major milestones remaining?

From day one, HPC's business has been running on our financial systems. There are some legacy systems at HPC that will be converted over in the next two to three months as we continue integration. We are also working through legal contracts and branding. You will hear from us on a brand that ties together legacy Clean Harbors industrial business with HPC. We are working toward standard contracts with our top 100 customers that represent a substantial portion of HPC's business. Those items are in process and tied to the synergies Mike mentioned that we expect to realize by year-end.

With the termination of the Vertex asset deal: to what extent could you accomplish some of the things you were targeting with that acquisition organically or by other means?

We continue to look at making both internal investments and acquisitions. Over the past five years we've made several bolt-on acquisitions and will continue to evaluate a mix of internal investments and potential acquisitions to achieve strategic objectives.

We have no further questions at this time. Mr. McKim, I would now like to turn the floor back over to you for closing comments.

Okay. Terrific. Thanks for joining us today. We have a packed investor relations calendar in March with in-person conferences with Raymond James and Jefferies. We look forward to sharing the Clean Harbors story with you at those events, and have a safe day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.