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Clean Harbors (NYSE:CLH)
Q1 2020 Earnings Call
Apr 29, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to the Clean Harbors, Inc. first-quarter 2020 conference call. At this time all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation.

[Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, general counsel for Clean Harbors, Inc. Thank you, Mr. McDonald.

You may begin.

Michael McDonald -- General Counsel

Thank you, Christine, and good morning, everyone. With me on today's call are Chairman, President, and Chief Executive Officer Alan 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 considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act 1995.

Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, April 29, 2020. Information on potential factors and risks that could affect our actual results of operations is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revisions to the statements made in today's call other than through filings made concerning this reporting period. In addition, today's discussion will include references to non-GAAP measures.

Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are available in today's news release, on our website, and in the appendix of today's presentation. And now I'd like to turn the call over to our CEO, Alan McKim. Alan?

Alan McKim -- Chief Executive Officer

Thanks, Michael. Good morning, everyone. Thank you for joining us. Starting on Slide 3.

Before discussing our Q1 results, I'd like to address the coronavirus pandemic and how we're responding to it. Obviously, the outbreak has created a healthcare crisis and caused economic disruption around the globe, and I hope that all of you and your families are staying safe. Here at Clean Harbors, the safety of our employees is part of our culture and the top priority during this pandemic. As an essential services provider with teams on the frontlines of the COVID-19 crisis, we have instituted rigorous safety protocols and work closely with suppliers to make certain we have the necessary equipment to protect our employees.

During the crisis, our workforce has remained out in the field and at our plants, supporting our customers' needs across North America. I'd like to acknowledge their hard work and dedication. The workforce representing critical administrative functions has supported our field teams from home, and the strength of our systems has allowed that transition to be virtually seamless. Overall, the pandemic had a limited impact on our Q1 performance, but its effects worsened toward the end of the quarter with the commencement of more shelter-in-place orders in the U.S.

and Canada. We expect the virus to impede our business in the second quarter, particularly within Safety-Kleen. In addition to limited driving and business activity across North America, Safety-Kleen also had been affected by the sharp downturn and the value of base oil. In short, we are faced with some difficult near-term market conditions, and we are making -- taking significant actions in response.

Let me touch on some of those actions. Starting with alignment of our cost structure with the demand environment, we are rightsizing our workforce through furloughs and other reductions and implemented a nonbillable hiring and wage freeze, and we restricted all travel. We've also gone back to many of our vendors and suppliers to negotiate for savings or improved payment terms. In addition, we've temporarily shutted half of our rerefining capacity to reflect the current demand for base oil as well as the likelihood of less available used motor oil in Q2 and beyond.

From a liquidity perspective, we drew down $150 million on our revolver to strengthen our balance sheet in the event that crisis worsens. We have reset our net CapEx spend plans for 2020, and we've lowered our expected spend by more than $50 million to preserve capital and support our free cash flow for the year. As noted in this morning's earnings release, given the current market uncertainty, we're withdrawing our annual guidance for 2020. That said, I believe our strong balance sheet leaves us well-positioned to succeed.

Turning to Q1 financials on Slide 4. Revenues rose 10% from a year ago as both operating segments recorded solid growth. At the same time, our adjusted EBITDA increased to a record $122.6 million, driven by our mix of high-value waste streams and high utilization, augmented by projects and emergency response work. Our adjusted EBITDA margin increased 130 basis points to 14.3%.

Looking at our segment results, beginning on Slide 5. Environmental Services revenue grew 11% based by contributions from our facilities network and Field Services group and aided by warmer weather nearly all quarter. Adjusted EBITDA growth of 22% was driven by business mix, disposal volumes, and emergency response revenue. Emergency response work totaled $21 million, representing COVID-19 de-con work and a cleanup of a chemical plant fire.

Our disposal facilities saw impressive volumes this quarter as incinerator utilization increased to 86% and landfill tonnage grew 39%. Our average price per pound for incineration in Q1 was up 11%, reflecting the record level of high-margin direct burn streams that we gathered. Overall, another terrific quarter for our Environmental Service segment. Moving to Slide 6.

Safety-Kleen revenue was up 8%, primarily by growth in the SK Oil business. Adjusted EBITDA and margin improved on lower SK Oil transportation costs and higher rerefining production compared with a year ago when volumes were disrupted by frozen rivers and flooding. Within the SK branch business, core services performed well. While parts washer services were flat with the prior year, waste ore collection was up slightly to 55 million gallons, blended products accounted for 25% of volume in the quarter, and our direct volume was 7%.

The first quarter began with positive signs that IMO 2020 was going to enable us to expand our refining spread as high sulfur fuel oil values had fallen, and base oil prices were up in early January. But the oil shock sparked by the global outbreak of the coronavirus, IMO 2020 has largely been sidelined, and base oil has fallen by $1 a gallon. We entered Q2 with significant pressure on our rerefining spread. And in this environment, the value of used motor oil is in a charge-for-oil state.

In response to the current market conditions, we've significantly raised our charge-for-oil program. Driving in the U.S. and Canada needs to normalize before our spread and lubricant demand can rebound. And we see conditions -- when we see conditions improve, we'll consider reopening our closed rerefineries.

Turning to Slide 7. Given the current environment, our capital allocation strategy is critical as ever. As I mentioned earlier, we are reducing our planned net CapEx by more than $50 million. We divested two businesses in Western Canada in the first quarter as we continued to steadily shrink our direct exposure to energy.

Since we began executing our divestiture program several years ago, we've sold seven businesses for approximately $120 million in proceeds. In terms of M&A, we're not likely to be active near term. Long term, we believe we'll emerge from this market downturn stronger, both financially and operationally than some of our peers, which will allow us to be opportunistic. For our buyback program, we will likely hold off until we are certain that the domestic economy is on a clear path to recovery.

In addition, we'll look to repay the $150 million on the revolver as soon as this crisis shows signs of nearing an end. Looking ahead to our segments, although we have seen some cancellations and project delays due to COVID-19, we expect our Environmental Service segment to weather the current downturn well. We expect our decontamination work and growing volumes of infection waste to help offset what would certainly be a larger decline. Within Safety-Kleen, we expect both our branch business and our SK Oil to be hit fairly hard, particularly here in Q2 as stay at home orders greatly reduce vehicle travel and generate less used motor oil.

Our SK branch business should rebound as shelter-in-place mandates are lifted and low gasoline prices encourage a rebound in driving. In SK Oil, our rerefining spread has contracted with a drop in crude, and we have aggressively increased our charge-for-oil pricing, but volumes are off and near-term demand for base oil has fallen. In summary, our Q1 results demonstrated the strength of our business model, the value of our assets and our frontline role in emergency response. Our market leadership, financial liquidity and positive free cash flow will enable us to navigate this global crisis.

And with that, let me turn it over to Mike Battles. Mike?

Mike Battles -- Chief Financial Officer

Thank you, Alan, and good morning, everyone. Let me echo Alan's comments about the outstanding work of our team and everyone on the front lines of the crisis. Through the unprecedented events we've experienced in just a few weeks, I think we all have a deeper appreciation for the professionals, especially healthcare workers, who put themselves at risk every day to help those in need. Turning to Slide 9 and our income statement.

As Alan indicated, we delivered record first quarter results. Revenue grew nearly $78 million, while adjusted EBITDA grew by nearly $21 million. This reflects the mix of business we achieved in the quarter, project work and favorable weather. From a gross profit perspective, we saw a sharp increase in both absolute dollars and on a percentage basis due to higher utilization, pricing, and a favorable comp with prior year.

Our gross margin increased by 160 basis points from a year ago. SG&A expenses were up $14.5 million in the quarter due to the higher revenue, investments in our employees, and some onetime expenses from last year -- onetime items from last year. As we move forward, we are focusing much of our cost reduction efforts in this area to bring expenses in line with our revenue. Depreciation and amortization in Q1 was down slightly to $47.5 million.

We completed two small bolt-on acquisitions in 2019, while also divesting several businesses. For 2020, we expect depreciation and amortization in the range of $285 million to $295 million, which is a little lower than last year. Income from operations increased 92% to $45.5 million, a first-quarter record, reflecting the combination of our revenue growth and improved gross profit. On a GAAP basis, EPS was $0.21 in Q1 versus $0.02 a year ago.

Our adjusted EPS was $0.28. Turning to the balance sheet on Slide 10. As Alan mentioned, we drew $150 million on our revolver during the first quarter which increased our cash and short-term marketable securities to $494.3 million at quarter end. We saw reasonable AR collection late in March, which led to a healthy cash balance.

Our strong liquidity position further protects our company and adds financial flexibility should we need it. Our balance sheet remains in good shape. Current and long-term debt obligations at quarter end rose to $1.7 billion, reflecting the drawdown on our revolver. Our weighted average cost of debt is now 4.3% with a healthy mix of fixed and variable debt.

Leverage on a net debt basis was 2.2x for the trailing 12 months ended March 31. Looking at our most recent cash balance from yesterday, our cash remains essentially flat from where we ended Q1. The team has done a nice job maintaining its focus on collections and managing our spend. Turning to cash flows on Slide 11.

Cash from operations in Q1 was up slightly at -- to $33.7 million. CapEx, net of disposals and the purchase of our headquarters, was $59.9 million, up from a year ago, resulting in adjusted free cash flow in the quarter of a negative $26.2 million, which is consistent with prior year and our expectations. For the year, we are now targeting CapEx, net of disposals and purchase of our headquarters in a range of $140 million to $160 million. During the quarter, we repurchased approximately 300,000 shares of our stock at an average price of $57.41 a share for a total of $17.3 million.

As Alan mentioned, we'll be cautious in our approach to buybacks until we see evidence that markets are well into their recovery stage. As Alan also noted, given the uncertain market environment, we would -- we are withdrawing our 2020 guidance. We're hopeful we'll be able to reinstate guidance with our Q2 earnings announcement, provided markets have stabilized. In summary, Q1 was a strong quarter, highlighted by several financial records, including adjusted EBITDA.

If it were not for COVID-19, our Q1 results would have positioned us for the fourth straight year of profitable growth. We have taken significant actions in response to the pandemic and are prepared to take additional steps in the event of a prolonged recovery. We are focused on things we can control, carefully -- including carefully managing our costs, and pursuing new waste streams to feed our landfills and incinerators. With that, Christine, please open up the call for questions.

Questions & Answers:


Operator

Thank you. We will now be conducting a question-and-answer session. [Operator instructions] Our first question comes from the line of Tyler Brown with Raymond James. Please proceed with your question.

Tyler Brown -- Raymond James -- Analyst

Hey, good morning, guys.

Mike Battles -- Chief Financial Officer

Good morning.

Alan McKim -- Chief Executive Officer

Hey, Tyler.

Tyler Brown -- Raymond James -- Analyst

Mike, just real quick. Can you parse the $21 million of revenue that came from the chemical plant and the de-con work, just how much from each?

Mike Battles -- Chief Financial Officer

Yup. It is about $10 million for the de-con work, Tyler, and about $11 million for the chemical spill, chemical fire.

Tyler Brown -- Raymond James -- Analyst

OK. And would you expect both of those to continue in Q2, or is the chemical plant cleanup largely complete?

Alan McKim -- Chief Executive Officer

The chemical plant is essentially complete. The decon work will continue into Q2 and beyond.

Tyler Brown -- Raymond James -- Analyst

Yeah. Yeah. OK. And then, you know, Alan, I know these are just unprecedented times, but in the SK branch business, I mean, how should we think about revenues there versus the 50% drop in gas station pump volumes that I think we're seeing here in April? I mean, is that a really good KPI to be watching for the SK branch sales? I assume that, that correlates very high with vehicle miles driven.

Alan McKim -- Chief Executive Officer

No, I think as you know, a lot of the Safety-Kleen business is a subscription-based business where we outperform these repetitive services. And we're seeing about a 25%, 30% turn away because of the -- you know, the closures. And so I think that would probably be a good number to think about in the second quarter for the Safety-Kleen brand side of the business.

Tyler Brown -- Raymond James -- Analyst

OK. And then quickly on the SK Oil side. So Alan, if I recall, back in '15, you guys talked about having a two-month lag on your UMO inventory and that precipitous drop in base oil prices there -- the precipitous drops make it really difficult to manage the spread as you kind of flush out those inventories out of the system. So, I mean, if we couple together the shuttering of half the capacity, it seems like you're going to have an inventory lag issue.

Is it reasonable to assume that SK Oil, that piece of SK, loses money in Q2? I mean, based on my old model, I think you lost money in Kleen Performance back in Q1 of '15.

Alan McKim -- Chief Executive Officer

That's not our expectation right now that, you know, our forecast and -- or at least our discussion certainly is that it will be making money in the second quarter as a result of all the effort that we're putting in on both the front-end collection side as well as obviously going back to our suppliers on our additive side and some of the other costs that go into that business. So -- but we are not expecting to lose money in SK Oil in the second quarter.

Tyler Brown -- Raymond James -- Analyst

OK. That's extremely good to hear. And then maybe my last one. Mike, was there an incentive comp accrual in the quarter? And if so, what percent of normal?

Mike Battles -- Chief Financial Officer

Yeah, Tyler. It was about a $7 million advantage versus our -- kind of our forecast. So that is in the $122 million for the quarter, there probably is a $7 million reversal of a run rate, based in some -- most of it's in SG&A, some of it is in COGS, depending on the person involved because the targets are much lower.

Tyler Brown -- Raymond James -- Analyst

Yeah, yeah. OK. Thank you. Appreciate it.

Mike Battles -- Chief Financial Officer

One point I want to mention before we get in other call is that, in the script, I read depreciation for Q1 was down slightly. It's down slightly to $74.5 million. I misspoke and said a wrong number. Just FYI.

Operator

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

Noah Kaye -- Oppenheimer and Company Inc. -- Analyst

Thanks. And thank you, Mike, for that D&A clarification. I appreciate that. Can we talk a little bit about the pipeline for the base business? You said in the release, you know, your large quantity generators generally have not really given you much of a slowdown yet.

Just talk a little bit about, you know, the trends that you are seeing now, kind of, here at the end of April. What are you seeing from petrochem customers, from chemicals customers generally? You know, ow much of a, you know, volume reduction are you seeing from them? How are you thinking about kind of price/mix trends in the second quarter so far?

Mike Battles -- Chief Financial Officer

Yes. So, we -- Noah, this is Mike. I'll start and Alan feel free to jump in. The -- what we're seeing, to your point, Noah, is that we're waste, and we had a healthy backlog kind of going into the Q1.

And we exited the quarter with still a very healthy backlog. You know, the incinerators are running very well. And the large quantity generators, you know, continue. Are we seeing signs of a slowdown? We absolutely are.

But as I see here today, you know, I think that the plants still are kind of running well with a healthy backlog of waste streams. And you know, many of the things that we deal with in the large quantity generators, whether it be chemical manufacturing, petrochem, agriculture, you know -- agrochem, we're still seeing we're still seeing a lot of that waste streams coming into the network. So, you know, I'm hopeful that incinerator is going to continue to do well here and to kind of carry us for a bit through Q2 and beyond.

Alan McKim -- Chief Executive Officer

And predominantly, I would say, the industries that support automotive are the ones that we've seen impacted from a volume standpoint.

Mike Battles -- Chief Financial Officer

Absolutely.

Alan McKim -- Chief Executive Officer

But for the most part, our volumes have pretty good. And like you said, our backlog is still strong.

Noah Kaye -- Oppenheimer and Company Inc. -- Analyst

Yeah, yeah. That's helpful. And then if I could just follow-up on the prior question around the COVID de-con work. I think you said in the prepared remarks, unless I misheard that, that will help offset or cushion, you know, maybe softness elsewhere.

I don't think you talked too much about the industrial services side of the business. But can we just understand generally what your expectations are, based on kind of current orders and, you know, request for information. I mean how big do you think the decontamination work has the potential to be this year from a revenue perspective? Are we talking, you know, another avian flu? Or are we talking something much less than that? Can you dimension it out for us a little bit?

Alan McKim -- Chief Executive Officer

Yeah. I don't think it would certainly be at that level. We've done about 2,500 or so de-cons at this point. Some of them are significant and some are small.

Probably in the $50 million range would probably be a good estimate right now in what we'd be thinking. But clearly, the amount of demand has been significant. We've certainly not been able to meet all the demands. But you know, we have shifted quite a bit of our workforce.

We brought people out of the Safety-Kleen business. We brought people out of our Industrial Services business to bring them over into our emergency response teams and help, you know, complement the Field Services organization. So that's worked quite well and continues on as we speak.

Mike Battles -- Chief Financial Officer

Hey, Noah. One add to that point. So, I think that's a fair estimate, $50 million, is as good as anything. But really, it does depend on, you know, kind of the level of where the economy goes and where this virus goes, right? And so, we -- I think we have a pretty decent line of sight to that number for 2020, but who knows as this may become a line of business for a long period of time, right? And so -- and we're treating it like that.

And so, we certainly at first, as I think about kind of Q1. And maybe even Q2, it's more like an ER-type of an event. But as I think going forward, perhaps it becomes a longer-term line of business because, frankly, it's probably going to be here for a while.

Noah Kaye -- Oppenheimer and Company Inc. -- Analyst

Sure. That's very helpful. And maybe just to clarify then. I may have heard the word offset, but I think about this relative to, you know,maybe some softness in industrial, I mean past industrial downturns, obviously, that legacy Industrial Services business was pretty hard-hit.

Is $50 million kind of enough to offset, you know, delays or weakness, do you think, in Industrial Services? Or is that sort of a negative in your view when you think about Industrial and Field?

Mike Battles -- Chief Financial Officer

Yeah. Noah, I'll start here. So I think that as Alan said in his remarks, you know, I think that the – you know, when I think of ES, the segment, you know, I think there's going to be softness in Industrial Services as turnarounds get pushed out. And I think that this is going to help out.

Is it going to counterbalance all that? It remains to be seen, right? Because in the fall, when the turnaround schedule, let's say, everything is fine, I'm making that up, who really knows. You know, there's going to be a higher turnaround activity in the fall and maybe larger turnarounds. So we may get some of that back. It's kind of hard to say right now, right? And so, I think in the short term, I think the de-con work that Alan's mentioning will be really busy here in Q2 will offset some of the softness in the ES business.

And maybe it's OK, but it's tough to say long term.

Noah Kaye -- Oppenheimer and Company Inc. -- Analyst

I appreciate it that. I'll turn it over.

Alan McKim -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Brian Maguire with Goldman Sachs. Please proceed with your question.

Brian Maguire -- Goldman Sachs -- Analyst

Hey. Good morning, everyone. Hope everyone is doing well, OK, and all your families are safe and healthy.

Alan McKim -- Chief Executive Officer

You, too, Brian.

Brian Maguire -- Goldman Sachs -- Analyst

Just a couple of questions. One on -- sticking on Safety-Kleen. I know the SK Oil business, I think you used to talk about in a good year, it might give $100 million in EBITDA. Bad year, $70 million.

You know, catastrophic year, maybe $50 million to $60 million. I don't imagine you ever contemplated the kind of environment we're necessarily in right now. I'm just wondering if, and I know you're not giving guidance per se, but do those sort of rough guideposts still apply here? Or do you think we're maybe just in uncharted territory?

Mike Battles -- Chief Financial Officer

Unchartered territory, Brian, I would say that. I'd say that theory was predicated on us being able to sell everything we made. And that was always predicated on the fact that we could sell everything we had, and there was a spot market for that somewhere in the world. And as you well know, and everyone well knows, that tank oil is -- there's a glut of oil.

And so that is putting us into unprecedented territories. That's part of the reason why we had to withdraw guidance because we just don't know what that number is going to be. But it seems like that old -- the old theories will come back again someday. But those old hypotheses that we used to share and used to be very true for years and years and years, are probably not true in 2020.

Brian Maguire -- Goldman Sachs -- Analyst

Yes. It certainly makes sense. On the -- and just sticking on that, I was just wondering, thinking about 2Q here with the amount of downtime you'll take in SK Oil, you know, how should we think about the fixed cost absorption on that? Maybe bucketing it, you could talk about just how COGS flex in a down-volume environment like this, how much of the costs are fixed and you'll be stuck with them? I think you said that you think it'll still be breakeven or slightly profitable, so that helps guide post a little bit, but just thinking about the mix of fixed versus variable costs in that business.

Mike Battles -- Chief Financial Officer

Yes. So, what we've done is, as Alan said in the call, we have shuttered about half our capacity. And so that's really predicated on demand coming back. And that's really helped us from a fixed cost perspective.

There's been some furloughs associated with that. So that has helped us a bit. We also are, you know, looking at kind of every cost and with the lower cost of oil, the additives that we blend with our base motor oil and our -- to make blended oil has gone down quite a bit as well. And so all that's going to be kind of in this, too.

And what the exact percentage is in the SK Oil business between fixed and variables is kind of -- I don't have that in front of me, but that's directionally what I'm seeing.

Brian Maguire -- Goldman Sachs -- Analyst

OK. Just last one for me. This is maybe more of a longer-term question. I guess some of it depends on how quickly we recover here.

But the price and mix in incineration has benefited a lot over the last couple of years from some of the higher value waste streams. I think a lot of those have been tied to the petchem projects that have come online in the U.S. and obviously, a lot of those were predicated on the U.S. being advantaged from a cost point of view, nat gas and NGLs versus global oil prices.

Oil, where it is today, it seems like it's taken that advantage away. Obviously, the plants are still there. They haven't gone away. But their ability to be like competitive globally might be a bit impaired for the time being.

Just wondered if that is part of your thinking or if you're seeing any kind of already signs of the backlog in those petchem waste streams starting to dry up or, you know, signs that the backlog might be shifting back toward some lower-value waste streams?

Alan McKim -- Chief Executive Officer

I – you know, I think our direct burn business continues to be very strong, and we actually have quite a backlog in that space that continues today. So, I would say that our competitors as well as ourselves are, I think, very strong from a volume and utilization standpoint. We know that there are several captives that are shutting down for an extended period of time. Some of those are the result of COVID-19, where their manufacturing may be impacted and, therefore, it ultimately makes sense for them to shut that capacity down and go to a -- instead of having sort of a 25%, 30% operating utilization.

So, we are getting more business from former captive operations out there, and that's something that we hope will continue. We've had some ongoing discussions with some of our customers who have captive plants and whether that would be a, you know, -- a three to sixth-month kind of project or whether that might be something permanent. But as we've said for the last several years, part of our expansion of our El Do plant was because of anticipation of an increase in volume with a lot of the chemical manufacturing expansion due to low price of natural gas. And we think that model is still intact, even regardless of where crude oil is today.

Brian Maguire -- Goldman Sachs -- Analyst

All right. Thanks very much. Good luck on the quarter.

Alan McKim -- Chief Executive Officer

Thank you.

Mike Battles -- Chief Financial Officer

Thanks, Brian.

Operator

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

David Manthey -- Robert W. Baird and Company -- Analyst

Hey. Good morning, everyone.

Alan McKim -- Chief Executive Officer

Good morning.

David Manthey -- Robert W. Baird and Company -- Analyst

Good morning. On the ES strength, is there any possibility that you're starting to see or that you may see in the future quarters, a pull-forward of customer turnarounds because of the economic cause? So, customers taking the opportunity of low demand to take the facilities down, which could actually lead to a surge in volumes for you, but then again, maybe a more lackluster turnaround season in the fall. Is that something you're hearing about, possibility?

Alan McKim -- Chief Executive Officer

We're not, David. I think the concern that we hear, and somewhat the reason why people are delaying turnaround, is the fear of bringing 500 or 1,000 contractors from, you know, all over the country into their plants and the potential of having, you know, a significant outbreak in the middle of a turnaround, which would be catastrophic, as you know, if you've got halfway through one of these turnarounds at one of these major refineries, for example, and then couldn't get it completed. So, it's really -- I think more of the delays from what we're hearing is just a concern about the virus rather than the business environment.

David Manthey -- Robert W. Baird and Company -- Analyst

OK. That's good to hear. Thanks for that. On Superfund cleanups, the Feds are allowing delays for projects that aren't -- that don't produce imminent danger, have you seen any impact there yet on your Field Services business? Or could there be a drag on the project work and landfill volumes through the second half if the situation continues?

Alan McKim -- Chief Executive Officer

Yeah. We're -- we definitely saw early in the beginning of the quarter, the second quarter, a number of projects get pushed out to the third quarter or even to the fourth quarter. So, you're absolutely right, if there's some discretion. And again, I would say it's as much to do with the concern with the virus than it is anything.

Getting into one of these projects, you know, mobilizing a lot of people from across the country into, you know, some of these projects, I think, and just getting kind of halfway into it and then having sort of a problem with the virus outbreak is more of a concern rather than spending of the dollars.

Mike Battles -- Chief Financial Officer

And Dave, just to add to that, we've had a couple of customers say they don't want people from certain states coming to their location. So that's been a challenge for us from a staffing perspective on some of the projects that are going on.

David Manthey -- Robert W. Baird and Company -- Analyst

Got it. OK. And last quick one here. Alan, you mentioned aggressively adjusting your charge for oil.

Is that referring to an increase greater than the $0.70 that you announced in March or not?

Alan McKim -- Chief Executive Officer

I'm not sure if I heard the first part of the question.

David Manthey -- Robert W. Baird and Company -- Analyst

Well, in your monologue, I think you mentioned aggressively adjusting charge-for-oil prices.

Alan McKim -- Chief Executive Officer

Yes.

David Manthey -- Robert W. Baird and Company -- Analyst

And I'm just wondering, relative to the $0.70 you announced in early March, it is aggressively greater than $0.70 or up to $0.70?

Alan McKim -- Chief Executive Officer

Well, again, we're modifying some of our contracts as well because as we look at both WTI and some of the base oil indexes that we use, you know, those contracts that we have allow us to significantly change, you know, how we price those products or price those customers on the incoming waste oil side. So, we're certainly working both ends and communicating those challenges to our customers out there. We did have a second increase, to your point, that was put in place the end of April, and that will be going out between the first and 15th of May. So, we definitely are communicating with our customers to let them know, you know, sort of the real challenges.

Obviously, when you see crude oil trading at $11 a barrel, you see diesel and gas at historical lows, most of the customers that we're servicing, the automotive customers, they certainly are seeing the gas pump price. And so, they've been working with us, and we continue to really manage the spread there as best we can.

David Manthey -- Robert W. Baird and Company -- Analyst

Thank you. All the best, guys.

Alan McKim -- Chief Executive Officer

OK.

Mike Battles -- Chief Financial Officer

Thanks, David.

Operator

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

Michael Hoffman -- Stifel Financial Corp. -- Analyst

Hi. Thank you, all, for taking this. And again, wish everybody being safe. Alan and Mike, on the emergency response, when you look back to the avian flu, if I remember correctly, there was about $170 million was tied to that, but it was with the USDA.

So it was OK margin, but not wow. I'm assuming this margin is much better because you're doing it with private companies.

Mike Battles -- Chief Financial Officer

Michael, this is Mike. It was $300 million for the avian flu, not $170 million. But the -- to answer your question, the margins are pretty good. Certainly, we had kind of, what I would say, first-mover advantage.

We did get out in front of this pretty quickly and mobilized the teams. You know, as I look here and kind of the current bids we're seeing, the margins have softened a bit because there's more people kind of getting into it and seeing the value there. So, I think we did have some -- I think we had some pretty good margins early on. I'm assuming they're going to soften a bit as we get into Q2 and Q3.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

But they're definitely better than the corporate margin?

Mike Battles -- Chief Financial Officer

Absolutely.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

Yeah. OK. And then when we think about looking at data that's telegraphing this opportunity in incineration, your unbilled receivables, can you talk us through how we should read through what that's telling us?

Mike Battles -- Chief Financial Officer

You know, unbilled receivables are just projects that are in the middle of a larger project. And sometimes they end at the end of the month. And we haven't -- we can't bill them until the actual -- the project is complete, and that rolls into the next month. And so that's -- in my mind, that's simply a timing item.

Michael, I wouldn't read much further into that.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. So, it looked like a good number. So I was just thinking maybe that helps me support why incineration is going to stay full.

Mike Battles -- Chief Financial Officer

I mean, the answer is that deferred revenue is still pretty high. And as Alan said in his remarks that the pipeline coming into it is still pretty strong here in April.

Alan McKim -- Chief Executive Officer

Yeah, I think when you look – when you think about deferred revenue, Michael, it's only down a couple of million from the end of 2019. And that is typically both the backlog and waste disposal as well as the parts washer services for Safety-Kleen because they're in a reserve basis as well. So, I think that number -- that deferred number is sort of [Inaudible]

Mike Battles -- Chief Financial Officer

A good number to go by, yes.

Alan McKim -- Chief Executive Officer

Considering what we're talking about.

Mike Battles -- Chief Financial Officer

The other thing, Michael, we're getting some infectious waste as well, right? So that's also kind of coming in -- coming online here in April.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

Right. And then, are we in a position to talk about what kind of dollars of costs have been affected so far? I mean, I remember on a call we did together about a month ago, $35 million of incentive comp was in the budget. There was $20 million of T&E. And then if you've done some furloughing or shuttering capacity, I mean, it sounds like these numbers are adding up to $70 million, $80 million potential offsets, and then you deal with the lack of activity as, you know, a counter to that.

Are we -- is that the right way to think about it?

Mike Battles -- Chief Financial Officer

Yeah, Michael, so I'll start and Alan feel free to jump in. So, we're -- to incentive comp, you're right, maybe of the $35 million, maybe $30 million if it comes back in, I think that's a reasonable expectation. T&E is down quite a bit. And once shelter-in-place laws are removed, we'll be judicious in trying to get back to travel.

And that T&E number probably stays pretty low for the rest of the year. When thinking about furloughs and other actions that we're taking, we're in the middle of that right now, and I hate to kind of speculate as to what that ultimate number will be. I think what's going to happen is that we're going to try to adjust our cost structure to the lower revenue, and we're going to be -- we're trying to be very smart about that. And Michael, as you know, you've been following us for years and years, you know, we're a cost-conscious organization.

We're in Industrial Services business. We manage our margins tight, and we'll take aggressive actions when needed. And we're hopeful that the actions we're taking will be sufficient. And if they're not, we'll continue to do it.

So, it's unfortunate that, that has to come to be, but that's where we are.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. And then based on the comment made earlier that you -- Alan, you expect SKO to be profitable in 2Q. That's going to probably be your worst quarter. Therefore, it's reasonable to conclude, you'll be profitable for the year.

I get it. It's going to be a low number, but you expect SKO to be profitable for the year based on the actions you're taking?

Alan McKim -- Chief Executive Officer

Yes, yes.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. And free cash flow has been a key focus of the company, the depths at which you've cut the capital spending sort of starting at $225 million, less the $25 million for the headquarters, then pull out the $50 million, $60 million, there's your $140 million, $150 million. We're going to end up with a pretty decent free cash flow number too then.

Mike Battles -- Chief Financial Officer

Yeah, Michael, I would say that the two things are happening in the cash flows that are going to b, you know, offsetting the lower earnings, right, will be the lower CapEx, as Alan mentioned, as well as, you know, the CARES Act does provide for, you know, payroll tax withholds. And I'm sure your other companies are doing the same thing. You know, we don't have to submit in 2020 our, you know, component of employer tax. And that for a big U.S.

company with a lot of U.S. employees, that's actually a pretty material number. That's probably going to be a $30-plus million winner from a cash flow standpoint in 2020. And don't get too excited because that needs to be paid in 2021 and 2022.

You have to pay it back. But certainly in the short term, from a liquidity standpoint to help companies like ours, make sure that, you know, it's lower for longer, we can still do well. That payroll tax provision will be a cash flow winner for us here in 2020.

Alan McKim -- Chief Executive Officer

I think, obviously, just to add to that point, though, you know, we realize that a lot of customers are hurting out there. A lot of our customers are, you know, in tough shape. And so, you know, we're really focusing on receivables, making sure that we are getting our bills out the door faster. That's one of the reasons why unbilled actually was down about $5 million in the quarter.

You know, we're doing everything we can to really stay as tight as we can on our receivables. Our DSO is not, you know -- has not improved. We've roughly around 80 days. And you know, so that's a top focus of us to make sure that we get our cash in the door.

Mike Battles -- Chief Financial Officer

Absolutely.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. And that leads to me my last one. Bad debt allowances, how are we thinking about that in the context of historic trends?

Mike Battles -- Chief Financial Officer

Yes. So normally, Michael, we have, you know, $8 million to $9 million on a normal year. You know, Q1 was a little higher because we are concerned about some of our small-quantity generators, small automotive shops and their long-term capital structure whether or not they can withstand this. But -- so we did raise it up a little bit.

I'm not sure what the end number is going to be. It's probably going to be -- it won't be double the normal run rate. Will it be a little higher? Sure, sure. And so, in Q1, we tried to cover off on some of that.

So our bad debt expense normally runs $2 million, $2.5 million a quarter, was $4.5 million here in Q1.

Michael Hoffman -- Stifel Financial Corp. -- Analyst

OK. Thank you so much.

Mike Battles -- Chief Financial Officer

Thanks, Michael.

Alan McKim -- Chief Executive Officer

Thanks, Michael.

Operator

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

Larry Solow -- CJS Securities -- Analyst

Great. Good morning, guys. Good to hear your voices, and I echo the well wishes.

Mike Battles -- Chief Financial Officer

Same here, Larry.

Larry Solow -- CJS Securities -- Analyst

Just a few follow-ups, if I may. I'm not – just on the cleanup side, margins, it sounds like -- for the cleanup, it sound like they're north of the corporate, and maybe somewhere in that swine flu -- avian swine flu range, but maybe the opportunity is less. Is that competitive reasons? Or is -- because it seems like we're still somewhat early in the opportunity for cleanups, I would imagine, right?

Mike Battles -- Chief Financial Officer

So, Larry, I'm glad to hear your voice as well. We have just competitive rates. And what those rates are, you know, we -- I'd rather not give those out. We battle every day with other companies that are out there in our space.

I think we offer kind of very competitive rate.

Larry Solow -- CJS Securities -- Analyst

Got it. And then on the furloughs, and I know too early to quantify, but it sounds like it certainly biased toward the SK side or even significantly biased toward the SK side. Is that fair to say?

Mike Battles -- Chief Financial Officer

Not necessarily. I'd say that it's across all three pieces of our business, both the SK side, the corporate section, and the Environmental Services.

Larry Solow -- CJS Securities -- Analyst

OK. And CapEx, any particular projects? Is it more growth projects, I assume, that are being pushed out a little bit? Any more color on what you sort of postponing or delaying?

Mike Battles -- Chief Financial Officer

Yeah. As Alan mentioned, we took off about half of our rerefining capacity. So, there was some CapEx there that they had invested. We also -- the business with lower revenue needs less vehicles.

And so, we had some vehicle upgrades and new trucks we were going to put online, and we've slowed those down. And so my view on that is if there's a recovery in the back half of the year, we feel we come back in the end of June. And if we think that things are looking a little better, maybe it goes a little higher. But I think that -- I think for now, I think that's the right and prudent thing to do.

And as you know, Larry, we give our CapEx numbers, we hit those CapEx numbers. So, team is really good about managing that spend, and we'd look at it, you know, every week.

Larry Solow -- CJS Securities -- Analyst

Right. OK. On Environmental Services, just a little bit higher-level question. Obviously, you know, I think coming into this year, it seems like your business is well-positioned as it's been in several years.

And clearly, the Q1 performance demonstrates that. Very strong backlog. How about -- if this COVID runs for a couple of -- another quarter where, you know, it's full-blown out and then we slowly come back, is there, you know, a scenario where some of your customers, you know, begin to operate at a much lower utilization so they give off much lower waste volumes, you know, and backlog starts to. You know, get worn through, you know, that we could actually see a lower -- a much lower, you know, latter -- later part of the year, even into '21, even if COVID is sort of somewhat under control?

Alan McKim -- Chief Executive Officer

I think, particularly on the environmental side, where a lot of customers have to move waste every 90 days, we will continue to see the services perform for the majority of those customers. They've been open. A lot of our Environmental Services customers have been open, our utilities, our refineries, our chemical companies, the pharmaceuticals. You know, we -- the businesses that have really been more shuttered that impact us is on the Safety-Kleen side.

And although that also brings in other containerized waste, you know, volumes would be less coming in from the Safety-Kleen into the Clean Harbors disposal network, you know, the TWS waste. But overall, you know, just based on generation cycles and the need to move waste every 90 days, we anticipate to continue to see volumes coming out of our customers. Although maybe if they are doing less, you know, there'll be less volumes down the road here. But we've been really pleased in listening to our operating teams report in, you know, how much our customers have stayed in business during this shutdown, where all the states have basically been in a shutdown mode.

Larry Solow -- CJS Securities -- Analyst

Right, right. Got it. About just last couple, just on the price of oil. Obviously, the precipitous drop, not a beneficiary to SK in the short term.

But in a vacuum, just on the environmental side, got I suppose that's a net benefit, much greater drop in cost for you. Is that fair to say?

Mike Battles -- Chief Financial Officer

Larry, we have a fuel surcharge we have. And so, as oil prices go up, we can charge our customers a little more. So, it's not necessarily – you know, obviously, lower fuel prices will spur a lot of maybe in further investment in the U.S., but that's not -- that doesn't necessarily mean a short-term linear growth.

Larry Solow -- CJS Securities -- Analyst

OK. And then IMO 2020, obviously, still early in the game there, too. With the shipping industry under, obviously, you know, some significant stress, you know, is there a possibility that -- with those restrictions, the regulations on that get lax for even several years?

Alan McKim -- Chief Executive Officer

I don't believe so. I don't think we've heard any rumors at all on that being -- particularly being a UN-sponsored initiative. So, we just, you know, -- we saw it coming in, in January, like I mentioned in my notes, but just no visibility right now, Larry.

Larry Solow -- CJS Securities -- Analyst

Yeah, that makes sense. OK. Listen, I appreciate it, guys. Thank you.

Alan McKim -- Chief Executive Officer

OK.

Mike Battles -- Chief Financial Officer

Thanks, Larry.

Operator

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

Hamzah Mazari -- Jefferies -- Analyst

Hey, good morning. I hope you guys are safe and healthy. The first question is just around if you could give us April trends. A lot of companies have been talking about -- have been pulling guidance, but talking about what they're seeing in April in Environmental Services and on Safety-Kleen.

Just how April compares to Q1 or March, or however you want to answer that question.

Mike Battles -- Chief Financial Officer

Sure, Hamzah. I'll start, and Alan, feel free to jump in. I just -- we'll just -- we had a great kind of pricing quarter for Q1. We had, you know, 11% on price in Q1, and I think that, that would really kind of meet the high-value waste streams that we had in our network and continue to do well.

That has continued through what we see as of, you know, as of yesterday. And as I mentioned in my call, Hamzah, our cash balance was flat to quarter end. We're kind of same where it was last year, kind of April versus March. So again, I'm really pleased with, you know, our cash collections.

As Alan mentioned, we're concerned about receivables and our ability to collect those receivables, especially from our smaller company generators. And the fact that cash collections have been stabilized has been -- is still decent, it's still such a great answer for us from a strength of a balance sheet standpoint is really positive news. On the SK side, you know, we've seen, as Alan mentioned, you know, 30% turn away. That's what's happening.

And oil prices and the impact on our ability to both collect and to sell oil in the SK business has been impacted dramatically, as Alan mentioned.

Hamzah Mazari -- Jefferies -- Analyst

Great. And then, you know, you had mentioned the Environmental Services business, you know, clearly, it's performing very well. Could you maybe talk about how it did in the last downturn and, you know, how the business is different today?

Mike Battles -- Chief Financial Officer

Yeah. I think that in the Environmental Services business, right? What happened back in 2008, '09, '10, you know, Industrial Services really struggled. That business is a big part of ES, but the margins are much lower. We used to have margins in the mid-teens.

And now, they're in the single digits. So if that business were to slow down and it will slow down in Q2 with the lack of turnarounds, I don't think it's going to have as much of a material impact on earnings as it did kind of, let's say, back in the day. The tech service business continued to do well. And that business, you know, that slowed down a bit.

Some pricing pressures, but that continues to do well. I think Field Service, you kow, is going to get a huge benefit from the decon work, and that's going to do well here in Q2.

Hamzah Mazari -- Jefferies -- Analyst

Great. And then just last question, I'll turn it over. You know, coming out of this, when we come out the other side, where do we sort of stand on the closed-loop strategy? Just any update there coming out of this would be great. Thank you.

Alan McKim -- Chief Executive Officer

You know, we continue to build out, you know, our network, our e-commerce platform to support our closed loop. We continue to see broad customer acceptance to that initiative, and we'll continue to drive that initiative. But certainly, that's been, you know, disrupted here during this, you know, closure. So, we'll see how customers do come in back as the states start opening up.

Hamzah Mazari -- Jefferies -- Analyst

Great. Thank you.

Alan McKim -- Chief Executive Officer

OK. OK, Hamzah.

Operator

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

Jim Ricchiuti -- Needham and Company -- Analyst

Thank you. Question on the M&A. It sounds like things are on hold right now, but I'm wondering how you're thinking about maybe the funnel of opportunities as we start to come out of this. Do you anticipate any potential changes out there in terms of what might be available to you?

Alan McKim -- Chief Executive Officer

I would think that, you know, there are companies out there that are heavily leveraged. We see some competitors, you know, at a 5, 6x leverage and not knowing where their new EBITDA numbers are going to come out. You know, there may be some opportunities for us to look at both some smaller or larger deals where, you know, we might be a good partner with them. We certainly had passed on a lot of transactions over the last couple of years, as you know, because of the leverage that a lot of PE firms were putting on some of our competitors and the prices that we're paying, but maybe that world is going to change.

We just don't know until things settle out here in the next two or three months.

Jim Ricchiuti -- Needham and Company -- Analyst

Got it. And it's a question on the SG&A. I'm wondering if there's anything -- was there anything unusual in that number that maybe you haven't talked about that you should -- you can call out from the quarter? Anything that we need to be mindful of?

Mike Battles -- Chief Financial Officer

Yeah, Jim, this is Mike. So last year, if you recall, we had about $10 million, a little over $10 million of kind of onetime, let's say, good guys, if you will. We got a settlement of a lawsuit for about $5.5 million, and then we sold some receivables that had previously been fully reserved for about $5 million. And so, both those items came in, which we talked about.

They're not a secret. We talked about last year. And so, when you look at our year-over-year SG&A increase of $14.5 million, about 10 of that – $10.5 million of that is due to these kind of onetime items, which we talked about in the call last year.

Jim Ricchiuti -- Needham and Company -- Analyst

Got it. Thank you.

Operator

Our next question comes from the line of Scott Levine with Bloomberg. Please proceed with your question.

Scott Levine -- Bloomberg Intelligence -- Analyst

Hey, good morning, guys.

Mike Battles -- Chief Financial Officer

Hey, Scott.

Alan McKim -- Chief Executive Officer

Good morning.

Scott Levine -- Bloomberg Intelligence -- Analyst

So, I was hoping to elaborate a little bit, or you could elaborate a little bit on the cleaning and disinfection work that you're talking about. Can you give us a sense of what some of maybe those types of mandates are those kind of cleanings of commercial facilities, that type of activity? And if you're willing to, maybe discuss the margins that you guys expect to earn on that, or are earning on that. Are those kind of comparable to either segment or corporate? Just a little bit more color regarding the type of activity there.

Mike Battles -- Chief Financial Officer

Yes, Scott, I'll start in. So, our de-con work is really kind of three different areas, where we either disinfect, we can decontaminate and then we dispose, right, we call it the D3 system. And so again, we're really proud of that. And depends on what you want, to answer your question, what do we do? We do it all.

Anything from large arenas, to small office buildings. And so, it depends on what you want and how fast you want it, and what level of clean do you want to get to it, right? So, there's a difference between just someone wiping down some handrails versus bringing in a team with the forgers and really doing it at a very detailed level. It depends on what level. If it's just the building has been idle, maybe you do a lighter touch.

If building has some people who've been sick, maybe do a heavier touch. And that's something we just offer them. And again, I don't want to talk about margins. We -- I mentioned that in an earlier question.

I think we're with very competitive margins in the space. I think that we do -- we are nationally recognized. I'm really proud of what we do there. I really think it's great that our employees, as Alan said, have been able to take people and keeping them busy in other parts of the business that have been maybe a little slower and getting them engaged and making sure we're doing it safely in compliance with laws.

And again, I'm really proud of that.

Scott Levine -- Bloomberg Intelligence -- Analyst

Fair enough. And to clarify, you said $50 million in revenue potentially for the year is a decent bogey to think about?

Mike Battles -- Chief Financial Officer

Yeah. I mean, you ask me to pick a number out, yes, I can do that. It really is completely dependent upon, you know, the level of infection, what happens, how fast the company – the economy starts ramping back up again, shelter in place, laws get reversed, infection rates. I mean, there's so many variables out there to kind of put a number on it.

I mean, I'm happy to try to take a shot at it. That's fine. But anything beyond that is so difficult to do at this time.

Scott Levine -- Bloomberg Intelligence -- Analyst

Fair enough. One last one for you. We have seen some decent size consolidation activity within the space, generally, with the Harsco-ESOL deal and some of the activity with US Ecology. Do you expect any like changes in the competitive landscape over the next year or two years, maybe opportunities to gain share? Just any other thoughts around the general landscape from an industry standpoint.

Alan McKim -- Chief Executive Officer

I think the consolidation is good for the industry. I mean, certainly, you know, having stronger competitors, rational competitors, I always found, is really good for the business. And so, from that standpoint, when you look at how much money is being paid for those acquisitions that you mentioned, you know, they got a good return on that investment. And so, our hope and expectation would be is that they're going to be rational, and that's going to be good for the industry.

Scott Levine -- Bloomberg Intelligence -- Analyst

Got it. Great. Thanks, guys.

Alan McKim -- Chief Executive Officer

OK.

Mike Battles -- Chief Financial Officer

Thanks, Scott.

Operator

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

Alan McKim -- Chief Executive Officer

All right. Thanks for joining us today. We are participating in several virtual investor conferences in the coming weeks. We look forward to connecting with many of you then.

We hope you all stay safe out there. Thanks for joining us.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Michael McDonald -- General Counsel

Alan McKim -- Chief Executive Officer

Mike Battles -- Chief Financial Officer

Tyler Brown -- Raymond James -- Analyst

Noah Kaye -- Oppenheimer and Company Inc. -- Analyst

Brian Maguire -- Goldman Sachs -- Analyst

David Manthey -- Robert W. Baird and Company -- Analyst

Michael Hoffman -- Stifel Financial Corp. -- Analyst

Larry Solow -- CJS Securities -- Analyst

Hamzah Mazari -- Jefferies -- Analyst

Jim Ricchiuti -- Needham and Company -- Analyst

Scott Levine -- Bloomberg Intelligence -- Analyst

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