Clean Harbors Inc Q1 FY2022 Earnings Call

Thank you, Christine, and good morning, everyone. Joining me on today's call are Alan S. McKim, our Chairman, President, and Chief Executive Officer; Mike Battles, our EVP and Chief Financial Officer; Eric Gerstenberg, our President and Chief Operating Officer; and Jim Buckley, our SVP of Investor Relations. Slides for today's call are available on our website, and we encourage you to follow along. The matters we will discuss that are not historical facts are considered forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. We advise participants not to place undue reliance on these statements, which reflect management's opinions as of today, May 4th, 2022. Information regarding potential factors and risks that could impact our actual operational results is included in our SEC filings. The company does not have an obligation to update or publicly disclose the results of any revisions to the statements made in today's call, except through the filings pertaining to this reporting period. Today's discussion will also address non-GAAP measures. Clean Harbors believes this information provides a useful additional metric and enables consistent historical comparisons of its performance. Reconciliations of these measures to the most comparable GAAP measures are available in today's news release, on our website, and in the appendix of our presentation. Now, I would like to turn the call over to our CEO, Alan McKim. Alan?

Thanks, Michael. Good morning, everyone, and thank you for joining us. I'd like to start today's call with a topic I'm passionate about, and that's safety. It's our priority here as we focus across the organization, our number one core value. Having had the privilege of being in the seat for more than 40 years, I've always envisioned that by continuing to integrate safety into our culture, we could show continuous improvement and really generate an annual total recordable incident rate of under one, with our true goal of being zero incidents. We took a significant step toward that milestone in Q1, concluding the quarter with a TRIR of 0.97. When you look at the waste industry, that level of safety would far exceed anything that our peers are delivering. And I want to express my appreciation to our entire team for looking out for one another, and more importantly, practicing our core safety philosophy of Safety Starts with Me: Live It 365. That mindset is critical in order for us to achieve our goal of a sub-10 TRIR for this year. Turning to our Q1 financial results on slide three. We exceeded our Q1 guidance as both segments performed ahead of expectations. Our results were consistent with the past several quarters, with strong demand across our key lines of business, driving healthy topline growth. And what has historically been a seasonally weakest quarter, margins came in at a solid 15.4%. Outside of the first quarter of 2021, this quarter was our best Q1 margin performance since we purchased Safety Kleen in 2012. Despite supply and inflationary challenges, the team executed well, implementing a comprehensive pricing program, supported by cost control initiatives. A couple of metrics that are not on the slide, but I wanted to mention this morning are hiring and turnover. On the hiring side, our recruiting team has done an excellent job, attracting new talent and expanding our workforce, given all the demand for our services. In Q1, we added a significant number of billable employees and expect to extend that hiring momentum in the coming quarters. The opportunity to work for a sustainability-focused company that protects the environment has really been a strong selling point for our recruiting team. Over the past several years, we've made substantial investments in our workforce, including offering additional benefits, absorbing healthcare cost increases, increasing compensation, and promoting more employees from within. These investments have resulted in decreased voluntary turnover. After a brief uptick in the second half of 2021, voluntary turnover has since receded to pre-pandemic 2019 levels. Clean Harbors is a place where many people have built and are continuing to build successful careers. With more now than 6,000 of our employees having been with us for over 10 years, and of those even 1,500 have been here for more than 25 years. That creates a lot of stability across our business and a wealth of institutional knowledge that enables us to train the next generation of leaders here. Turning to our segments starting on slide four. Environmental Service revenue grew 45% in Q1, this increase reflected the HPC acquisition in late 2021 and healthy organic growth, driven by customer demand and increased pricing. While we're still in the early innings of integrating HPC, after just one full quarter we're already beginning to benefit from their broad capabilities, particularly as we've moved into the spring turnaround season. The potential to capture synergies and to cross-sell our products and services is quite extensive. During the quarter, the pace of activity in our services business quickened considerably, resulting in strong organic growth. Revenue in our legacy industrial service business, if you exclude HPC, grew 24%. Likewise, our base business and field services, not including HPC and the decontamination work in both periods, increased 28% driven by cross-selling and a steady flow of small to medium Emergency Response jobs. Safety Kleen Environmental also continued its positive momentum, increasing 9% from a year ago. Looking at the ES segment profitability, adjusted EBITDA climbed 31% in Q1 on strong revenue and pricing coupled with cost control initiatives. As expected, segment margin was down year-over-year. This is primarily attributable to a tough comp with Q1 of 2021, which included both government assistance and a higher level of COVID emergency response work, as well as the fact that we have yet to fully integrate the HPC business. Environmental Service margins should improve as we move through the year, and we would expect the incremental benefits of our pricing, cost reductions, and synergy initiatives to more than offset the impact of inflation. Within our disposal network, incineration utilization improved to 85% from 80% in Q1 a year ago. Average incineration pricing was up 2% from a year ago based on mix in the quarter, which included some project volumes. So, if you use a market basket approach, our average price was up 7%. A pickup in projects also enabled us to increase the tonnage into our landfills by 14%. The head of our remediation team recently commented that the first half of this year is already the strongest that we've seen in the last five years. Revenue from COVID decontamination work totaled approximately $9 million in Q1. That amount was greater than we anticipated but down substantially from $28 million in Q1 a year ago. We did not expect much more COVID work here in 2022. Parts washer services were flat with a year ago, while most of Safety Kleen brand's core offerings, including containerized waste pickup and VAC services, grew at a very strong pace. Moving to slide five. Revenue in our SKSS segment was up 44% through a combination of healthy production levels at our plants and higher base and blended product pricing, backed by overall market demand. Adjusted EBITDA rose by more than $20 million or 64%. We continue to capitalize on market conditions to maximize our re-refining spread through product pricing gains and effective management of our collection costs. Waste oil collection volumes were up again, growing 13% to 53 million gallons and had a PFO lower than Q4 as we had to address some inflationary pressures in that business. Our percentage of blended products and direct volumes came in as expected in the quarter, given the ongoing additive shortages in the market and the profitability we're generating in our base oil. Turning to slide six. I wanted to touch on a handful of growth initiatives that we have underway. This is an exciting time at Clean Harbors, given all the demand we're seeing; we're really laying out the foundation for our momentum to continue in the years ahead. We have invested in a number of areas, such as expanding our inside sales team, supporting our Safety Kleen Environmental business; we are already seeing a lower customer churn. We are bringing HPC into the fold; we've launched a renewed focus on cross-selling. For example, at a top industrial service customer in the chemical industry, we leveraged the HPC relationship to secure a greater share of industrial cleaning, specialty services, and waste disposal work at one of their sites. In Canada, we parleyed HPC's custom tooling technology to convert a customer from performing a turnaround at their plant every three years to really making it more of an annual event, and our technology-based solution created a more efficient and expedited process for the customer, overall shortening the shutdown period. From a branding perspective, we've combined the hydrochem PSC name with our legacy Clean Harbors Industrial Services brand to create HPC Industrial, whose logo you can see on the slide. We will officially be rolling out this new branding in all our contracts and legal entities on July 1st. We’re confident that by combining our industrial services organizations under one brand we will simplify our service and communications to our industrial service customers. Finally, when we look at the incineration market, capacity is scarce. We are bringing 70,000 tons of additional capacity online in early '25, which is attractive to companies that are weighing whether to shut down their captive incinerators. Turning to slide seven. We continue to evaluate opportunities to execute on elements of our capital allocation strategy. Internal investments are being prioritized around expanding throughput in our network, whether in disposal, recycling, or re-refining. Certainly, with the Kimball incinerator being our most substantial long-term investment that remains on schedule, we're also adding a considerable amount of landfill cell capacity this year. On the M&A front, we continue to look at several bolt-on acquisition candidates that could support growth for one or both of our two operating segments. So, let me conclude by reiterating what our numbers over the past few quarters have proven. That demand has never been stronger. Within our disposal network, we have a healthy backlog of volume and a strong sales pipeline, particularly within waste projects. Underlying trends such as US infrastructure spending, chemical manufacturing, and re-shoring of multiple industries are providing encouraging backdrop for our entire environmental segment. Within SKSS, the demand environment for our sustainable products remains very strong, supported by global supply dynamics and the rise in value of our re-refined base oil. We will continually carefully manage the front end of our re-refining spread, achieve greater transportation efficiencies using rail, and really target market-specific pricing that help counter those rising costs that we see. Across the organization, we are confident that we have pricing and cost reduction strategies in place to offset inflation in 2022. We have a uniformity of our systems and processes that enables us to respond quickly to market conditions. And we have an industry-leading team that is second to none. And we have instilled a culture of accountability and continuous improvement here at Clean Harbors, and that drives our results. So, as I look out over the remainder of '22 and beyond, the market conditions are highly favorable across all our core lines of business, and we continue to expect Clean Harbors to deliver strong profitable growth and robust free cash flow this year. So, with that, let me turn it over to Mike Battles. Mike?

Thank you, Alan, and good morning, everyone. I just want to mention that I have a bit of a cold this morning, so I apologize in advance. Let's start with our income statement on slide nine. Revenue increased 45% in the first quarter, driven by the addition of HPC, which we closed on in October, and healthy organic growth in our legacy businesses. Topline growth excluding HPC was 22%. Adjusted EBITDA was 39% higher than a year ago, coming in at $180.3 million. SG&A expense on a percentage basis improved by 220 basis points from a year ago to 12.9%, primarily due to our effective cost controls and reduction efforts, along with leveraging the HPC revenue. We're starting to see some of the early synergy benefits from the acquisition in these numbers. In addition, we benefited from the $3 million break fee related to the proposed Vertex acquisition that we collected in the quarter. For the full year, we now expect SG&A expense as a percentage of revenue to be around 13%, which is a significant improvement over 2021 levels. Depreciation and amortization in Q1 increased to $84.3 million, primarily related to the addition of the HPC assets. For 2022, we continue to anticipate depreciation and amortization in the range of $330 million to $340 million. Income from operations in Q1 increased by 71%, reflecting revenue growth, as well as our efforts to better manage and price our re-refining spreads. Turning to the balance sheet on slide 10. Cash and short-term marketable securities at quarter-end were $415 million. The decline from year-end was expected and reflects typical Q1 seasonality and incentive compensation that was paid out in March for the terrific 2021 financial results. We ended the quarter with debt of just over $2.5 billion. Leverage on a net debt trailing 12-month EBITDA basis was approximately 3 times. Based on the midpoint of our new 2022 EBITDA and free cash flow guidance, we expect to reduce our leverage to approximately 2.2 times at year-end. Our weighted average cost of debt is 4.46% with about 70% of our debt at fixed rates. While the market finally saw its first rate hike in two years in March, we believe we are well positioned even in a rising interest rate environment. Turning to cash flows on slide 11. Cash from operations in Q1 was a negative $38.6 million, which was largely expected. CapEx net of disposals was $69 million, up approximately 70% from a year ago as we added HPC and began to ramp up the spend on our new Kimball incinerator. That investment in Nebraska accounted for approximately $5 million in Q1, and we still expect that to be in the range of $40 million to $45 million for the full year. Adjusted free cash flow in Q1 was a negative $107.6 million due to high CapEx, incentive comp, working capital, and timing of some items including an extra payroll period versus a year ago. For 2022, we continue to expect our net CapEx to be in the range of $310 million to $330 million, reflecting the Kimball spend, the full year impact of HPC, above-average landfill expansion year, and inflationary costs for supplies and vehicles. During Q1, we bought back just over 41,000 shares of stock at a total cost of $3.7 million. We have $152 million remaining under our existing buyback program. Moving to slide 12. Based on our first quarter results and current market conditions for both our operating segments, we are raising our 2022 adjusted EBITDA guidance to a range of $800 million to $830 million with a midpoint of $815 million. Looking at our guidance from a quarterly perspective, we expect Q2 adjusted EBITDA to be 25% to 30% higher than what we posted in Q2 of 2021 due to HPC, higher profitability in the SKSS segment, and continued strong demand in the ES segment. Here's our revised full-year 2022 adjusted EBITDA guidance translates to our three segments. In Environmental Services, we now expect adjusted EBITDA at the midpoint of our guidance to increase in the mid-20s on a percentage basis from full year 2021. HPC pricing strategies, volume growth in our core lines of business, and multiple cost mitigation initiatives will more than offset inflation, lower decon revenue, and lack of pandemic assistance versus 2021. As a point of reference, this segment received government assistance of $10.2 million in 2021 and assumes none this year. For SKSS, we now anticipate full-year adjusted EBITDA at the midpoint of our guidance to decline mid-single digits from its impressive 2021 results. Given where we are today in the current market conditions, our original assumptions that this segment would produce significantly less adjusted EBITDA than in 2021 no longer seem realistic. Our revised guidance assumes that our re-refining spread starts to narrow in the third quarter and more in the fourth quarter compared with a year ago, with the first half of this year exceeding 2021. But as we sit here in early May, that spread has not narrowed at all yet. This segment received government assistance of $1.4 million in 2021 and assumes none this year. In our corporate segment, at the midpoint of our guidance, we continue to expect a negative adjusted EBITDA to be up around 5% from 2021, largely due to the addition of a full year of HPC corporate costs and wage inflation, offset by a lower severance and integration expense compared with a year ago along with the Vertex payments. Based on our Q1 free cash flow results and working capital assumptions, we continue to expect 2022 adjusted free cash flow in the range of $250 million to $290 million or a midpoint of $270 million. I'd like to remind everyone that those numbers include the substantial investment in our Kimball facility of $40 million to $45 million. Let me conclude by echoing Alan's comments on the current demand environment for our company, which we expect will support strong profitable growth throughout the remainder of the year. On our Q4 call, I highlighted the fact that we are an amazingly resilient company which is something that I believe is under-appreciated about Clean Harbors. What I've seen as CFO in the past six years is that we have worked extremely hard to instill consistency across all elements of our organization. That focus has fostered greater predictability in our results, enabling us to invest prudently, make informed strategic decisions around M&A, and generate stronger shareholder returns over both the short-term and long term. I'm personally very bullish about 2022 as both our operating segments had decidedly favorable outlooks.

We will now take questions from the audience. Thank you. Our first question is from David Manthey with Baird. Please go ahead with your question.

Thank you. Good morning, everyone.

Good morning.

First of all, thinking about your key verticals like chemical manufacturing, refining, and so forth, the cyclical components of your business. How are you thinking about those in the coming year here as the US economy and the global economy, if it slows as is generally expected?

Yeah, David. I'll take a shot at this. The market demand continues to be very strong. We have some waste streams given our increase in deferred revenue are out a few months now to try to get an open slot for incineration. Kind of all lines of business are kind of back beyond 2019 levels. So, it's hard for me to comment on macro factors, but certainly what we see is very strong demand across all verticals.

Okay, thank you. And second, Alan, thanks for the update on the personnel and labor situation. But if you had to gauge it one to ten, one being really bad ten being completely fine, where do you stand today? And maybe if you could address the financial impact on your cost stack of using outside service providers versus what you'll see when you can ultimately internalize those functions?

Thanks, David. We are currently aiming for a staffing level between seven and eight. We're experiencing increased costs from both temporary labor and subcontracting. We have strong relationships with our subcontractors, but using them can pressure our margins. I believe we are within that target range, and we observed a nice improvement in the first quarter. Eric, would you like to discuss the gains we've experienced?

Yeah. We've really flattened out our turnover from an increased turnover in 2021, we've rebounded back and we've been able to decrease our turnover while adding substantial labor billable workforce throughout Q1 as we finish the year, and we continue to have momentum in Q2. And we're really seeing that across all of our services for our customers. But as Alan mentioned, we continue to have a reliance on subcontracted and temp workers to help us get through this demand.

Got it. Thanks, guys.

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

Hi. This is Adam on for Jerry today. Thanks for taking my question. In Industrial and Field Services, could you update us on how much market share you have today in these businesses? And how you're thinking about potential for further consolidation in this space?

I believe the industry is quite fragmented, with many small regional players in both Industrial and Field Services, as well as several larger national companies in the US and Canada. I don't have a specific percentage or market share number to provide. However, we do hold a leadership position in our emergency response capabilities and are the company that is often called upon during major events, managing around 6,000 to 7,000 emergencies annually. This indicates that we are a market leader in that area. Additionally, on the industrial side, we possess significantly more equipment and personnel for turnaround work than our competitors. What are your thoughts, Eric?

Absolutely. And I'd also just add with the larger customers that have multiple sites and industrial as well as in Field Service, larger players that like utilities that cover large geographies, we have a very strong presence with all those customers.

Thanks. That's helpful. And I’m wondering when you expect the mix of blended products in your Safety Kleen segment to begin to normalize? And once that normalizes, how should we be thinking about the impact on margins?

So, there is still an issue with hydrogen additives. Our volumes were somewhat limited in the first quarter due to the hydrogen situation, but we hope to see a rebound by mid-May, which should result in stronger volumes than what we've experienced in April and early May. Regarding the additives, we anticipate that by the end of this year, we will address significant disruptions from additive suppliers. Many of our products, which have received their long-term approvals, cannot have different additive packages swapped in and out. This has constrained our ability to move forward, but we expect that next year, this area will begin to show growth again.

Great. Thanks so much.

Our next question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.

Hey, good morning, guys. Can you all hear me?

Yes.

Okay. My headphone is a little muted this morning. But hey, Mike, I just want to ask a little bit about the EBITDA guidance. So, I think you'd be at the midpoint of Q1, call it, by $9 million, you guided to Q2 EBITDA looks to be, I don't know, $20 million to $30 million above the street. And I realize this through to certainly not your guidance budget. But my point is, is it feels like the $35 million guide raise at the midpoint is simply on a better Q1 and a better Q2. So, one, am I in the right ballpark there? And two, does it just feel like there is some conservatism in the back half year, maybe you are just kind of wait and see kind of how things play out?

Yes. Tyler, that's accurate, because you just don't know. You don't know and there's a lot of factors that can go a lot of different ways. We're hopeful that our internal forecasts are higher than what we have guided today, and that's consistent with what we've been doing over the past few years.

Okay. Okay. That's helpful. Thanks for that. And then, I think, yes, margins were down about 100 basis points year-over-year in Q1. I know there is a ton of noise, you got HPC, government funds, decon, inflation, et cetera. But if you kind of parsed it all out, did the core margins improve year-over-year? And are you still expecting those margins in that segment to be flattish for the full year?

Yeah, Tyler. So a couple of things. So first of all, when you look at Q1 ES margins, which were down 200 basis points on a year-over-year on a reported basis, if you back out the decontamination work and higher margins on that business, the government money in HPC as we can estimate it for an apples-to-apples comparison, our margins are either flat to up a bit. Let's say legacy ES, which is really a testament to the pricing and the cost controls we put in place and something we're really proud of. And if you lookout for the rest of the year, Q2 will still be down versus prior year. Q3 will be flattish, and Q4 I think will be up quite a bit year-over-year. And so, I think when you look at the full year for ES margins for 2022 versus 2021, that'll be flattish to 2021, which is great.

Okay. Okay. Yeah, that's helpful. And then Alan, I think last quarter you talked about increasing the cadence on pricing. And if that requires you to walk away from some business, then so be it. But I'm just curious how some of those broader pricing discussions have gone?

We have been meeting regularly every week across the business to review our major pricing strategies and initiatives. We have decided to step away from some of our lowest margin business because we couldn't achieve the necessary price increases. Given the current market challenges such as labor and equipment constraints, as well as limited capacity in certain areas of our waste disposal operations, this decision is the right course of action. Consequently, we have managed to regain a significant portion of margin from the advantages we experienced in the first quarter, especially in the context of high-cost inflation, where diesel prices are currently over $6 a gallon. We are committed to aggressively pursuing pricing initiatives and will keep doing so as inflation continues to impact the company.

I found the commentary on safety regarding the tier ratio of 97 to be interesting. I want to confirm my understanding of the message. Were you indicating that this represents our best-ever safety performance for a quarter, or are we just approaching our near-term goal around one? Can you elaborate on that and discuss some of the financial and cultural benefits associated with maintaining a strong safety record?

Over the past ten years, we have consistently improved our safety standards. Last year was expected to be an exception due to COVID, but now having our safety metrics below one is significant. We have maintained these numbers before, but it's particularly noteworthy coming out of the first quarter, as that time typically does not yield such positive safety statistics. This year, our management team has set a goal for safety that is vital for the entire organization. Achieving this goal would be remarkable for our 20,000 employees who work in challenging and hazardous conditions. It’s important to emphasize that ensuring the safety of our employees is not only beneficial for them but also has positive economic implications, including savings on workers' compensation and insurance. The improvement we’ve seen over the last decade is substantial.

Okay. Yeah, that's helpful. And, sorry, just squeeze one quick one. Just on the landfill cell capacity this year, is that a material piece of the CapEx profile? Is that a multi-year spend? Or is that something that falls off in '23, '24?

It's Eric. We have a higher spend this year due to landfill expansions happening at multiple sites based on fill rates, but this expense will decrease in 2023 and 2024.

Okay. All right. Thank you. I'll turn it over. Thanks.

Our next question comes from the line of Jim Ricchiuti with Needham. Please proceed with your question.

Hi, thanks, good morning. I was hoping you might shed a little bit more light on the cost reduction strategies you alluded to. And just particularly in light of the cost pressures, the wage inflation, and obviously the significantly higher transportation costs, which I'm sure you're incurring. I mean, what can you say about what you're doing on the cost side? How meaningful is it in terms of offsetting some of these pressures?

Hey, Jim. This is Mike. Cost containment is central to what we do here. We focus on consolidating sites, handling maintenance internally, utilizing our resources effectively, and evaluating unprofitable branches to determine if they should be closed. We are always searching for ways to reduce costs in the business. We pay close attention to underperforming staff, particularly in SG&A, as we strive to ensure that we can't just rely on pricing to solve our challenges. It’s a combination of managing costs effectively, which might even mean keeping expenses steady, especially considering the inflationary pressures affecting nearly all items in our profit and loss statement. This approach is fundamental to Clean Harbors, and it remains unchanged even in a rising inflation environment.

Yeah. I think I'd just add. Every year for 15 years, we have a number of strategic initiatives around driving costs and improvement in our business, whether it's new technology investments or it's leveraging, as Mike mentioned, our footprint where 750 locations today. Leveraging rail in our whole rail infrastructure for example. So I think, as Mike mentioned, those initiatives are something that each and every year we do to drive costs out of the business.

Got it. You mentioned momentum in the Industrial Services business as we approach the spring turnaround season. I'm curious about what you're observing in both the legacy business and HPC. You provided some insights on that. Also, Mike, I might have overlooked it, but did you specify what HPC contributed in revenue for the quarter? I may have missed that.

Yeah. The revenue in the quarter is about $184 million.

Thank you. Regarding the momentum you're experiencing as you enter the turnaround season, are you noticing any advantages from the combined company's cross-selling efforts, or is it mainly due to favorable conditions in both the legacy business and the HPC business that you've integrated?

It's a combination of both. We've certainly been able to leverage our cross-sell with the HPC business, their automation technology into our past legacy Clean Harbors' industrial clients and we've seen a very robust demand going into the second quarter from industrial turnarounds. And so, we're really leveraging the combined workforce and taking that opportunity with us.

Got it. I'll jump back in the queue. Thank you.

Thanks, Jim.

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

Good morning. Thank you for taking the questions. Sorry about your cold, Mike. So, I'd like to dig a little deeper on the fundamentals of business. In ES, when we think of the volumes in the traditional treatment storage disposal side, what was the trend with landfill liquids and incineration, and have you seen a peak?

Yeah, Michael, it's demand continues to be robust and increasing. We came out of March with our strongest volumes ever, and strong liquid demand for incineration, strong direct burn, strong container volumes, and as mentioned earlier by both Michael and Alan, the project services robust demand there into our landfills, so it's strong trends across all verticals as mentioned before as well.

Okay. And then in Industrial and Field Services, I think what I'm hearing is that, HPC aside as an incremental add, the customer demand is returning some sense of normal maintenance cycles. Is that an accurate observation?

Yeah, I think that's an accurate observation, Michael, it is.

And that's a pretty significant statement itself since it's been disrupted for two years?

Yes.

Michael, to be clear, Industrial Services, excluding HPC, increased by 28% in Q1. This reflects the broad recovery we are witnessing in Industrial Services.

That's a significant point. When Safety Kleen was operating as an independent company, it was crucial to monitor gasoline prices over $4 since they tended to reduce consumer driving, which in turn extended the service cycle for parts washers. We reached $5 in some locations, and it even peaked at $9. So, what have you noticed regarding the service cycles for parts washers as you concluded the first quarter?

We've looked at that because, obviously, that was a concern. Service cycles haven't really changed. They have been hanging around the same nine weeks for the past four, five years. And if you look at even Q1, nothing has changed in that area.

So that might argue, because we think there is a theory now that maybe the old $4 threshold is now $5 before we start driving, that would seem to support that?

I think in our waste still volume clearly, we're seeing the heavy demand, and our volumes are up, and we expect to collect well over 230 million gallons this year, so I would say that we are not seeing that kind of reduction at all.

Okay. So then I was going to switch gears to SKSS. I wanted to make sure I heard the question or comment correct? So on the front end, you were actually able to reduce what you're paying for oil sequentially and I'm assuming that's over and above anything having to do with IMO 2020 at this point. Despite that, crude oil prices are as high as they are. What allowed you to do that?

I believe we effectively communicated with our customers about the rising costs we were experiencing in order to provide our services, as well as the significant increases in transportation and rail costs, which heavily impact the movement of our products. Customers seem to understand this situation. In the first quarter, we returned some of that cost to them, and we plan to do the same in the second quarter due to the market's robustness. We strive to support our customers in both good and challenging times. I also feel that, compared to a decade ago, we are significantly improving in managing our business's financial spread.

Okay. And then on the back end, forget that they're additive and hydrogen issues that are impacting blending and the like, but is the demand for a sustainable gallon narrowing the discount you used to have to take for posted prices?

Certainly is, I think that we are clearly able to get more of a market price today than we ever have. And I think Greg Linnington and the team here have really done a nice job of creating value for our products and we'll be coming out with some new marketing initiatives here in the coming weeks and months here that we think will really expand our visibility to our customers with the whole messaging of being a green product.

And then do you have a feel for how much the poster price would need to correct and there's two influence here; Supply demand is out of balance because of Russia now and we're at a really high oil price. But if oil prices come in and the world absorbs Russia, what happens to the poster prices? What are your thoughts about that?

I believe the current situation regarding diesel and jet fuel, along with the strong demand for base oil, suggests that we are not experiencing a significant slowdown. Cars are still actively on the road, and even with diesel prices at $6 a gallon in the Northeast, I think it may take some time before we see any changes.

Okay. And then I get that there are limits on being able to meet the demand. What is the level of demand now on blended if we really are now in the sustainable commitments by various companies?

I think over the next five years if we could get to $25 million on the direct blended that would be a good target for us to go at. We were at about $12.9 million, $13 million right now. So, I think that would be a good number to kind of write down.

If you compare March revenue to February revenue, it increased by $90 million, and when comparing March revenue to the same month last year, it rose by $140 million. Both of these factors are contributing to pressure on our accounts receivable, which are all current and affect cash flow negatively. Additionally, we had an extra pay period due to the timing of the quarter's end, resulting in an extra $20 million to $22 million in Q1 compared to last year, which also adds pressure. However, with the new guidance and overall working capital, I believe we are in a stable position for the rest of the year.

So there is an opportunity that you might be able to collect your money a little bit faster and that's the upside to the free cash flow?

That's right, that's right. And the EBITDA guide is up and that should translate into faster collections.

Well, I think, environmental regulations, infrastructure, I think are all going to drive more volume. And I think we're in for a good run. I think we've seen a continuation of customers looking at alternatives to running their own waste treatment plants, whether it's a water treatment or an incineration facility. So I really feel like we're going to see more outsourcing. We see more outsourcing on the industrial and tech services side. So our presence on our customer sites is growing and many of our employee show up every day at these large chemical plants and refineries and pharmaceutical locations, I think that is a demand shift that's happening. So I don't know, I think overall unless there is some significant great recession that we have a really good market in front of us right now.

Okay. Thank you very much.

Yeah. Thanks, Mike.

Thanks, Mike.

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.

Thanks, Christine. Thank you for joining us today. The team will be out at the Waste Expo next week and participating in the Stifel Investor Summit on Monday. And so, we'll also have a number of conferences in early June. So we look forward to sharing our story with you at those events. Have a great safe day. Thank you.

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.